As filed with the Securities and Exchange Commission on September 21, 2001
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PRELIMINARY COPY
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES AND EXCHANGE ACT OF 1934 (Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e) (2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material pursuant to Rule 14a-12
KRUPP REALTY LIMITED PARTNERSHIP - IV
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(Name of Registrant as Specified In Its Charter)
Not Applicable
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which
transaction applies: N/A
(2) Aggregate number of securities to which transaction
applies: N/A
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
KRUPP REALTY LIMITED PARTNERSHIP-IV
One Beacon Street
Suite 1500
Boston, Massachusetts 02108
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Dear Investor Limited Partner:
You are cordially invited to attend a special meeting of unitholders of
Krupp Realty Limited Partnership-IV, to be held on ________, 2001 at 10:00 a.m.,
local time, at One Beacon Street, Suite 1500, Boston, Massachusetts 02108.
The purpose of the special meeting is for unitholders to consider and
vote upon the sale of Walden Pond Apartments, one of Krupp Realty's real estate
investments, to an affiliate of the general partners, and to approve an
amendment to Krupp Realty's partnership agreement to permit the sale. The
general partners expect that, after payment of or provision for the
partnership's liabilities then due, unitholders will receive a cash distribution
as a result of the sale in the amount of approximately $220 to $225 per investor
limited partnership unit, which is expected to be distributed within 30 days
after the closing of the sale.
The general partners are proposing a sale of Walden Pond that is
consistent with their goal of proceeding with an orderly liquidation of the
assets of the partnership. This proposed sale to an affiliate of the general
partners has the benefit of being structured to take advantage of the
affiliate's need to enter into a purchase at this time to effect a so-called
"like-kind exchange" of property for its own tax planning purposes, and thus
contains terms that reflect a motivated buyer who is willing to pay a price of
$400,000 above the $12,400,000 appraised value of the property, as determined
(as of July 20, 2001) by Cushman & Wakefield, an independent real estate
valuation firm. In addition, because the purchaser is an affiliate of the
general partners, the sale includes favorable terms to the partnership that are
not likely to be present in connection with a sale to a third party purchaser,
including the fact that the partnership is not required to pay a real estate
brokerage commission in connection with the sale.
Although the partnership agreement does not require the consent of
unitholders to effect a sale of the partnership's property to third parties,
because the proposed purchaser of the property is an affiliate of the general
partners, unitholders representing a majority of the investor limited
partnership units must approve the sale.
The proposed transaction will provide you with the opportunity to
receive a cash distribution in exchange for the partial liquidation of your
interest in the partnership. The general partners of Krupp Realty and the
affiliate purchasing the property, together with the persons or entities that
control them, have determined that the sale transaction is fair to the
unitholders unaffiliated with the general partners and its affiliates, and
therefore
recommend that the unitholders vote "FOR" the sale and the related amendment to
Krupp Realty's partnership agreement.
In furtherance of its liquidation strategy, on August 1, 2001, the
partnership sold its interest in one of its other properties, Fenland Field
Apartments, to an unaffiliated third party and received $14,500,000, less
repayment of the existing mortgage note and closing costs. The partnership
expects to make an initial distribution of approximately $282 per investor
limited partnership unit in connection with that sale on or about September 21,
2001, which will be in addition to the $220 to $225 per unit to be distributed
as a result of the sale of Walden Pond.
In addition, on August 27, 2001, the partnership entered into a
purchase and sale agreement to sell its remaining real estate property to a
person unaffiliated with the general partners. Although no assurance can be
given, the general partners currently expect to close that sale within 60 to 90
days after the signing of that agreement. If that sale transaction closes and
the sale of Walden Pond occurs, the partnership will be dissolved and its assets
distributed to the unitholders (after payment of all partnership liabilities).
As a result, you will no longer have an interest in the partnership.
Unitholders representing a majority of the limited partnership units
are being asked to approve the Walden Pond sale and the amendment to Krupp
Realty's partnership agreement. Your vote is important no matter how many units
you own. Please date, sign and promptly return the proxy card in the enclosed
envelope or by facsimile as instructed in this proxy statement. If you plan to
attend the special meeting in person, please check the appropriate box on the
proxy card. You may change your vote in person, even if you have previously sent
in a proxy.
This proxy statement explains in detail the terms of the proposed
transaction. The date of this proxy statement is and was first mailed to
unitholders of Krupp Realty on _________, 2001.
Krupp Realty Limited Partnership-IV
By: The Krupp Corporation, a general partner
By: /s/ Douglas Krupp
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Douglas Krupp,
CO-CHAIRMAN OF THE BOARD OF DIRECTORS
Boston, Massachusetts
________, 2001
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF
THE TRANSACTION, NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
KRUPP REALTY LIMITED PARTNERSHIP-IV
One Beacon Street
Suite 1500
Boston, Massachusetts 02108
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NOTICE OF SPECIAL MEETING OF UNITHOLDERS
TO BE HELD ON ________, 2001
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To Our Investor Limited Partners:
We are holding a special meeting of the holders of investor limited
partnership units of Krupp Realty Limited Partnership-IV on ________, 2001, at
10:00 a.m., local time, at One Beacon Street, Suite 1500, Boston, Massachusetts
02108, for the following purposes:
o To consider and vote on a proposal to sell Walden Pond
Apartments, one of Krupp Realty's real estate investments, to
an entity affiliated with the general partners. It is expected
that, after payment of or provision for Krupp Realty's
liabilities then due, each Krupp Realty unitholder will
receive a cash distribution as a result of the sale in the
amount of approximately $220 to $225 in respect of each
outstanding investor limited partnership unit that the
unitholder owns as of the date of the distribution. A vote in
favor of the sale will also constitute a vote in favor of an
amendment to Krupp Realty's partnership agreement permitting
Krupp Realty to enter into a purchase and sale agreement and
complete the sale. Copies of the form of purchase and sale
agreement and amendment are attached as Appendices A and B,
respectively, and are described in the accompanying proxy
statement.
o To consider and act upon such other matters as may properly
come before the special meeting or any adjournment of the
meeting.
Only holders of Krupp Realty's investor limited partnership units at
the close of business on the record date, ________, 2001, will be entitled to
notice of, and to vote at, the special meeting or any adjournment of the
meeting.
Krupp Realty Limited Partnership-IV
By: The Krupp Corporation, a general partner
By: /s/ Scott D. Spelfogel
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Scott D. Spelfogel
SECRETARY
Boston, Massachusetts
________, 2001
Table of Contents
PAGE #
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SUMMARY TERM SHEET.............................................................1
Purpose of the Special Meeting........................................1
What You Will Receive as a Result of the Transaction..................1
Purposes of, Structure and Reasons for the Transaction................1
Independent Appraisal of the Property.................................2
Fairness of the Transaction...........................................2
Primary Potential Disadvantages of the Transaction....................3
Conflicts of Interest.................................................3
The Amendment.........................................................3
Vote Required.........................................................4
Financing of the Purchase Transaction.................................4
Termination of Sale Transaction.......................................4
Material Federal Income Tax Consequences..............................4
Rights of Appraisal...................................................5
INFORMATION ON VOTING..........................................................5
Please Read this Document in Full.....................................5
If You Want To Change Your Vote.......................................5
If You Plan To Attend The Special Meeting In Person...................5
WHO CAN HELP ANSWER YOUR QUESTIONS.............................................6
SPECIAL FACTORS................................................................7
Background and Purpose of the Transaction.............................7
Alternatives to the Transaction.......................................9
Fairness of the Transaction..........................................10
Disadvantages and Risks Associated with the Transaction..............11
Conflicts of Interest................................................12
Independent Appraisal................................................13
Effects of the Transaction...........................................17
Failure to Approve the Sale..........................................19
Plans or Proposals by the Partnership................................19
Plans or Proposals by the Purchaser Following the Sale...............19
Financing of the Purchase............................................19
Material Federal Income Tax Consequences.............................20
UNAUDITED PRO FORMA FINANCIAL STATEMENTS......................................23
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION.......31
THE SPECIAL MEETING...........................................................36
Special Meeting; Record Date.........................................36
Procedures for Completing Proxies....................................36
(i)
PAGE #
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Votes Required.......................................................37
Solicitation Procedures..............................................38
Revocation of Proxies................................................38
Appraisal Rights.....................................................38
THE PURCHASE AND SALE AGREEMENT...............................................39
Purchase.............................................................39
Representations And Warranties of the Parties........................39
Covenants............................................................39
Conditions to the Sale...............................................39
Closing..............................................................40
Termination..........................................................40
THE AMENDMENT TO THE PARTNERSHIP AGREEMENT....................................40
Purpose..............................................................40
The Amendment........................................................41
INFORMATION ABOUT THE PARTNERSHIP, ITS GENERAL PARTNERS AND THEIR AFFILIATES..41
The Partnership......................................................41
The General Partners.................................................41
Description of the Assets............................................42
Distributions........................................................45
Ownership of Units...................................................45
Market for the Units.................................................47
Related Party Transactions...........................................48
SELECTED FINANCIAL DATA.......................................................49
INFORMATION CONCERNING THE PURCHASER AND ITS AFFILIATES.......................51
The Purchaser........................................................51
Affiliates of the Purchaser..........................................51
WHERE YOU CAN FIND MORE INFORMATION...........................................51
General..............................................................51
Independent Accountants..............................................52
FINANCIAL STATEMENTS ........................................................F-1
(ii)
SUMMARY TERM SHEET
This summary term sheet highlights selected information included in
this proxy statement, and is qualified by reference to the detailed information
appearing elsewhere in this proxy statement and the attached appendices. Please
carefully review all of the information provided in this proxy statement.
PURPOSE OF THE SPECIAL MEETING
o To approve the sale of the partnership's 416 unit apartment
complex known as Walden Pond Apartments to Walden Pond Limited
Partnership, an affiliate of the general partners.
o To approve an amendment to the partnership's partnership
agreement necessary to effect the sale.
See "Special Factors--Background and Purpose of the Transaction" and "The
Amendment to the Partnership Agreement."
WHAT YOU WILL RECEIVE AS A RESULT OF THE TRANSACTION
o It is expected that, after payment of or provision for the
partnership's liabilities then due, you will receive a cash
distribution as a result of the sale in the amount of
approximately $220 to $225 for each unit you own. You may
expect to receive your cash distribution within 30 days
following completion of the sale, which (unless the purchaser
exercises its option to extend the closing for up to 60 days)
is expected to occur promptly following the special meeting.
o On August 27, 2001, the partnership entered into a purchase
and sale agreement to sell its remaining real estate property
to a person unaffiliated with the general partners. Although
no assurance can be given, the general partners currently
expect to close that sale within 60 to 90 days after the
signing of that agreement. If that sale transaction closes and
the sale of Walden Pond occurs, the partnership will be
dissolved and its assets distributed to the unitholders (after
payment of all partnership liabilities). As a result, you will
no longer have an interest in the partnership.
See "Special Factors--Background and Purpose of Transaction."
PURPOSES OF, STRUCTURE AND REASONS FOR THE TRANSACTION
o Effecting the partnership's plan of proceeding with an orderly
liquidation of the partnership.
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o Providing a cash distribution to you.
o Providing the partnership with a $400,000 premium for Walden
Pond over its appraised value (as of July 20, 2001).
o Eliminating uncertainties relating to the price and timing of
a possible disposition of Walden Pond to a third party in the
future.
o Allowing for more of the net sales proceeds to be distributed
to you than would otherwise be distributable in a typical
third party sale, by structuring a sale without customary
selling expenses, such as a real estate broker's commission.
o Allowing for more of the net sales proceeds to be distributed
to you promptly after the closing of the sale than would
otherwise be distributable in a typical third party sale, by
structuring the sale on an "as is" basis without any
continuing representations or warranties by the partnership
that would require the maintenance of cash reserves after
closing.
o Providing the purchaser of the property, which is an affiliate
of the general partners, with the ability to effect a
"like-kind exchange" within the purchaser's required time
frame, thus deferring the taxable gain from the sale of an
unrelated property owned by the purchaser, all at no expense
to you or the partnership.
See "Special Factors--Fairness of the Transaction."
INDEPENDENT APPRAISAL OF THE PROPERTY
o Cushman & Wakefield of Texas, Inc. has appraised the property
to be sold by the partnership and issued its report relating
to the appraisal, which is described in this proxy statement
under "Special Factors--Independent Appraisal."
o The price to be paid for Walden Pond represents a premium of
$400,000 over this independent appraised value.
See "Special Factors--Independent Appraisal."
FAIRNESS OF THE TRANSACTION
o The general partners believe that the purchase price and other
terms of the sale are fair to unitholders unaffiliated with
the general partners and recommend that you vote for the
approval of the sale. However, the general partners have
economic and other interests that are in conflict with the
interests of the unaffiliated unitholders. No independent
committee or independent third party has reviewed or approved
the sale transaction, although an independent real estate
valuation firm appraised the value of the property.
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o Together with the general partners, Walden Pond Limited
Partnership (the purchaser) and the persons that control the
purchaser, Walden Pond Texas, L.L.C., WPT Limited Partnership,
KRF GP Corporation, Douglas Krupp and George Krupp, are
affiliates of the partnership. The partnership and these
affiliates also believe that the terms of the sale are fair to
the unitholders unaffiliated with the general partners and
these affiliates, and their decision as to the fairness of the
sale is based upon the same factors considered by the general
partners in this regard.
See "Special Factors--Fairness of the Transaction."
PRIMARY POTENTIAL DISADVANTAGES OF THE TRANSACTION
o Continued ownership of the property by the partnership could
be more economically beneficial to you than the proposed sale
if the value of the property were to increase.
o A more favorable transaction might be available from a
third-party purchaser of Walden Pond now or in the future.
o No independent committee or entity negotiated the purchase
price for the property.
o No independent person has evaluated or rendered any opinion
with respect to the fairness of the sale to you.
See "Special Factors--Disadvantages and Risks Associated with the Transaction."
CONFLICTS OF INTEREST
o The general partners have economic and other interests that
conflict with your interests.
o The purchaser of Walden Pond is affiliated with the general
partners and desires to pay the partnership a lower price for
the property while you wish the partnership to receive a
higher price.
See "Special Factors--Conflicts of Interest."
THE AMENDMENT
o The partnership agreement currently prohibits the partnership
from selling any property to, or entering into agreements or
transactions with, a general partner or with affiliates of a
general partner, except as expressly permitted.
o Because the purchaser is affiliated with the general partners,
you are being asked to consent to an amendment to the
partnership agreement to allow the
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partnership to enter into the purchase and sale agreement and
complete the sale.
o If the amendment is not approved, the sale cannot be
completed; consequently, you are being asked to vote on a
single proposal encompassing both the sale and the amendment.
See "The Amendment to the Partnership Agreement."
VOTE REQUIRED
o Unitholders representing a majority of the investor limited
partnership units must approve the sale.
See "The Special Meeting--Votes Required."
FINANCING OF THE PURCHASE TRANSACTION
The purchaser expects to finance the purchase of the property with its
own funds together with proceeds from the refinancing of mortgage indebtedness
on the property. The purchaser's ability to obtain the refinancing proceeds is
not a condition to the sale.
See "Special Factors--Financing of the Purchase--Source of Funds."
TERMINATION OF SALE TRANSACTION
The proposed purchase and sale agreement may be terminated by the
parties, among other reasons, if the sale has not occurred by December 6, 2001.
Because the "like-kind exchange" described above must occur by this date, if the
sale has not occurred by then the purchaser currently intends to exercise its
right to terminate the purchase and sale agreement and not complete the sale.
See "The Purchase and Sale Agreement - Termination."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Each unitholder will recognize gain in connection with the
partnership's sale of Walden Pond equal to the excess of the amount realized by
the partnership in the sale and allocated to the unitholder over the
unitholder's adjusted tax basis in the property.
THE PRECISE TAX CONSEQUENCES OF THE TRANSACTION TO YOU WILL DEPEND UPON
THE FACTS OF YOUR SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISOR.
See "Special Factors--Material Federal Income Tax Consequences."
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RIGHTS OF APPRAISAL
Neither Massachusetts law nor the partnership agreement grants you
appraisal rights, without regard to how you vote (or abstain) at the special
meeting.
See "The Special Meeting--Appraisal Rights."
INFORMATION ON VOTING
PLEASE READ THIS DOCUMENT IN FULL
o Carefully read and consider the information contained in this
document.
o Indicate on your proxy card how you want to vote and mail your
signed and dated proxy card in the enclosed return envelope as
soon as possible.
o You may also fax your completed proxy card to Krupp Funds
Group at (617) 423-8919.
IF YOU WANT TO CHANGE YOUR VOTE
Send in a later-dated, signed proxy card to Krupp Funds Group before
the special meeting or attend the meeting in person and vote.
IF YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON
o You should send in your proxy card in any event.
o You may request a ticket for admission to the special meeting
by marking the appropriate box on the proxy card and returning
it no later than ______, 2001.
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WHO CAN HELP ANSWER YOUR QUESTIONS
After reading through this proxy statement, if you have more questions
about the transaction, you should contact:
KRUPP FUNDS GROUP
One Beacon Street
Suite 1500
Boston, Massachusetts 02108
Attention: Investor Services
Phone: 1-800-25-KRUPP
(1-800-255-7877)
Fax: (617) 423-8919
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SPECIAL FACTORS
BACKGROUND AND PURPOSE OF THE TRANSACTION
The partnership was formed in 1982 for the primary purpose of
acquiring, operating and ultimately disposing of real estate. In furtherance of
this purpose, the partnership acquired six multi-family apartment complexes and
invested in a joint venture that owned a seventh. The partnership then sold
three of those properties and the property held by the joint venture in 1990,
1991, 1992 and 1998, respectively.
Over the past several years, real estate markets in general have
improved, and the general partners recently determined that it is an opportune
time to formulate a liquidation strategy for the partnership to dispose of its
remaining properties. In March 2001, the partnership announced that, assuming
market conditions do not change, the assessment of the property sales market is
consistent with the general partners' expectations, and an acceptable
disposition plan can be implemented, the general partners expected to complete
the liquidation process by the end of March 2002. At the time of that
announcement, the partnership owned three properties, Fenland Field Apartments,
Pavillion Apartments and Walden Pond Apartments.
Subsequent to the partnership's announcement of its intention to
implement a disposition strategy, the partnership began the process of assessing
the property sales market for its three remaining properties.
In keeping with its liquidation strategy, on August 1, 2001 the
partnership sold Fenland Field Apartments to an unaffiliated third party, and
received $14,500,000, less repayment of the existing mortgage note and closing
costs. Because the sale was to a third party, the partnership was required to
make various representations and warranties to the buyer, and must maintain cash
reserves to cover any claims that may be made within the nine month claim period
set forth in the contract with the buyer in the event the partnership is
required to pay back a portion of the purchase price. Accordingly, the
partnership expects to make an initial distribution of the proceeds from the
Fenland Field sale in the amount of approximately $282 per investor limited
partnership unit on or about September 21, 2001, and expects to make one or more
subsequent distributions following the termination of this nine month claim
period.
On June 6, 2001, an affiliate of the general partners (the "Purchaser")
sold a property owned by the Purchaser to a third party. Pursuant to certain
federal income tax rules, the Purchaser is permitted to defer its federal income
tax liability arising as a result of that sale if it enters into a transaction
that qualifies as a "like-kind exchange" within 180 days following the sale. The
Purchaser has determined that such sale and the
8
subsequent purchase of Walden Pond, if the purchase occurs prior to December 6,
2001, would qualify as a "like-kind exchange."
As a result of the partnership's desire to sell its remaining real
properties and the Purchaser's desire to acquire Walden Pond, in early July 2001
the general partners and the Purchaser began considering the possible sale of
Walden Pond to the Purchaser. Because the general partners and the Purchaser are
affiliates, the general partners determined that a third party should be
retained to provide an independent valuation of Walden Pond and that any
purchase price proposal from the Purchaser should represent a premium to the
appraised value determined by such independent third party.
In July 2001, Cushman & Wakefield, Inc., an independent nationally
recognized real estate valuation firm, was retained to appraise the value of
Walden Pond. On July 20, 2001, Cushman & Wakefield of Texas, Inc. ("Cushman &
Wakefield") issued its report in which it opined that the market value of the
property, as of that date, was $12,400,000.
After receiving this appraisal, the general partners decided to proceed
with the sale of Walden Pond to the Purchaser, without soliciting any third
parties to obtain other offers to purchase Walden Pond, for the following
reasons. First, because of the Purchaser's requirement that the sale must occur
prior to December 6, 2001, the general partners believed that the process of
soliciting third party offers to acquire Walden Pond could delay a possible sale
to the Purchaser past its December 6, 2001 deadline, and might result in the
Purchaser no longer having an interest in purchasing Walden Pond. Second, they
believed that even if a third party would be willing to pay more than the
appraised value for Walden Pond, the third party, as in the case of the sale of
Fenland Field Apartments, would likely require the partnership to make various
representations and warranties, which could have the result of requiring the
partnership to pay back a portion of the purchase price. In addition to the
possibility of a reduced price, this would require the partnership to maintain
cash reserves to cover any post closing claims, thus delaying the distribution
of net proceeds to the unitholders. In contrast, a sale to the Purchaser would
not be structured with these disadvantageous terms. Third, they knew that a sale
to the Purchaser would not be conditioned on the Purchaser's ability to obtain
financing, which might not be the case with a third party. The absence of a
financing condition would make it more likely that a sale of Walden Pond would
occur.
On August 3, 2001, the Purchaser and the partnership agreed on a form
of purchase and sale agreement, which is subject to unitholder approval,
providing for the sale of Walden Pond to the Purchaser, and the assumption by
the Purchaser of all liabilities relating thereto, for an aggregate purchase
price of $12,800,000. This price is $400,000 more than the appraised value of
the property as determined (as of July 20, 2001) by Cushman & Wakefield.
9
The purpose of the transaction is for the Purchaser to acquire Walden
Pond, while providing unitholders with the opportunity to receive cash in
respect of their investment in the partnership.
The Purchaser desires to proceed with the purchase of Walden Pond at
this time because of the tax benefits it will obtain as a result of the
purchase, as well as its belief, together with the belief of the general
partners, that current market conditions and circumstances are favorable for the
sale of Walden Pond at a price and upon terms that are fair to the unaffiliated
unitholders.
On August 27, 2001, the partnership entered into a purchase and sale
agreement to sell its other real estate property, Pavillion Apartments, to a
person unaffiliated with the general partners. Although no assurance can be
given, the general partners currently expect to close that sale within 60 to 90
days after the signing of that agreement. If that transaction closes and the
sale of Walden Pond occurs, the partnership will be dissolved and its assets
will be distributed to the unitholders (after payment of all partnership
liabilities). As a result, unitholders will no longer have an interest in the
partnership.
ALTERNATIVES TO THE TRANSACTION
The general partners considered two primary alternatives to the
transaction: (1) the continued ownership of the property by the partnership and
(2) the sale of the property by the partnership to a third party and the
distribution of the net proceeds of the sale to the unitholders.
CONTINUED OWNERSHIP
Over the past several years, real estate markets in general have
improved and the general partners have determined that it is an opportune time
to formulate a liquidation strategy for the partnership. The sale of Walden Pond
is consistent with that strategy.
SALE OF THE PARTNERSHIP'S PROPERTY TO A THIRD PARTY
The general partners believe that a sale of Walden Pond through a
solicitation of third-party bids or an auction would not necessarily result in a
more favorable transaction for unitholders. A third-party transaction could
require the payment of transaction costs significantly in excess of costs to be
incurred by the partnership in the proposed sale, all
10
of which would be borne by the partnership, and these costs would reduce the
amount to be received by each unitholder in respect of his or her units. For
example, as in the case of the partnership's sale of Fenland Field, the
partnership would likely be required to retain a portion of the proceeds of a
third-party sale to fund possible post-closing liabilities to a third-party
purchaser. Under the terms of the proposed purchase and sale agreement with the
Purchaser, the partnership will not make any representations regarding the
property, and following the completion of the sale, proceeds of the sale (which,
after payment of or provision for the partnership's liabilities then due, will
be distributed to unitholders) will not be reduced by claims relating to
contingent liabilities of the property. The Purchaser has agreed to acquire the
property "as is." Additionally, no broker will be compensated for the sale,
which is an expense that would otherwise be borne by the partnership.
Although the general partners do not believe that the solicitation of
third-party bids would necessarily result in a more favorable transaction for
unitholders, there is no assurance that unitholders would not ultimately receive
more for their units as a result of the sale of the property to a third party
who was able to consummate this type of a transaction.
FAIRNESS OF THE TRANSACTION
THE GENERAL PARTNERS RECOMMEND THAT UNITHOLDERS VOTE FOR THE SALE OF
WALDEN POND TO THE PURCHASER AND THE RELATED PARTNERSHIP AGREEMENT AMENDMENT.
Although the amount to be paid to the partnership for the property (the net
proceeds of which, after payment of or provision for the partnership's
liabilities then due, will be distributed to unitholders) is not the result of
arm's length negotiations between the Purchaser and the partnership and is
subject to conflicts of interest, the general partners and the Purchaser, and
the persons and entities identified below that control them, believe that the
purchase price for Walden Pond and the other terms of the sale are fair to
unitholders unaffiliated with the general partners and these affiliates.
Therefore, the general partners recommend that unitholders vote "FOR" the sale
and the partnership amendment necessary to effect the sale. The general partners
based their conclusion on the following material factors:
o The purchase price for the property exceeds by $400,000 the
$12,400,000 appraised value of the property as determined (as
of July 20, 2001) by Cushman & Wakefield, an independent
nationally recognized real estate valuation firm.
o The sale is subject to the approval of a majority in interest
of the holders of investor limited partnership units
(excluding any such units owned by the general partners or
their affiliates).
o The purchase of the property is not subject to a financing
contingency, which increases the likelihood that the sale will
occur and that unitholders who desire to realize liquidity
will be able to do so.
11
o As a result of the Purchaser's affiliation with the general
partners, the Purchaser is familiar with the condition of
Walden Pond and thus is willing to assume all of the assets
and liabilities relating to the property on terms and
conditions that would be very uncommon for a third-party
purchaser, including the absence of representations and
warranties about the property, the absence of any
indemnification protection and the lack of any financing
contingency. If the partnership were to sell Walden Pond to a
third party, a portion of the proceeds would most likely have
to be retained to fund contingent liabilities (as in the case
of the sale of Fenland Field), thereby delaying the
unitholders' ability to realize the full value of the sale.
o The ability of the Purchaser to defer the taxable gain on the
sale of its unrelated property as a result of the sale will
not have any adverse effect on the partnership or the
unitholders.
The general partners relied primarily on the appraised value of Walden
Pond indicated in the appraisal report prepared by Cushman & Wakefield, an
independent valuation firm, in determining the fairness of the terms of the sale
to unitholders unaffiliated with the general partners. Because the appraisal
report was prepared by an independent third party, the general partners did not
believe it was also necessary to obtain an independent third party opinion with
respect to the fairness of the sale in order to make their fairness
determination.
The general partners also believe that the terms of the Walden Pond
sale is procedurally fair to unitholders unaffiliated with the general partners
despite the fact that the general partners did not retain a person unaffiliated
with the general partners for purposes of negotiating the sale of Walden Pond
and/or preparing a report concerning the fairness of the transaction solely on
behalf of the unaffiliated unitholders, because the sale is subject to the
approval of a majority in interest of the holders of investor limited
partnership units, excluding any such units owned by the general partners or
their affiliates.
Because the units are not traded on any established trading market, and
the only offer prices for units of which the general partners were aware related
to offers for units at a time when the partnership owned three multi-family
apartment complexes (as opposed to the two properties owned at the time of the
fairness determination), the offer prices were not considered relevant in
determining the fairness of the Walden Pond purchase price by the general
partners. See "Information About the Partnership, Its General Partners and Their
Affiliates - Markets for the Units." The general partners also did not consider
net book value to be relevant. Because Walden Pond is carried on the
partnership's balance sheet at its historical cost and has been depreciated over
the 18 years since the partnership's acquisition of that property, net book
value is a negative number, and therefore the general partners did not believe
net book value to be meaningful in connection with their fairness determination.
Neither did they consider the partnership's going concern value in relation to
this sale because they had previously made the determination to liquidate the
partnership.
12
In determining the fairness of the purchase price for Walden Pond and
the other terms of the sale to unitholders unaffiliated with the general
partners, the general partners relied primarily on the third party appraisal,
but otherwise did not find it practicable to quantify or otherwise attach
relative weights to the specific factors described above.
In making their determination as to the fairness of the purchase price
for Walden Pond and the other terms of the sale to unaffiliated unitholders and
as to the procedural fairness of the transaction, the partnership and its
affiliates referred to under "Summary Term Sheet - Fairness of the Transaction"
(I.E., The Krupp Company Limited Partnership-II, The Krupp Corporation, Walden
Pond Limited Partnership, Walden Pond Texas, L.L.C., WPT Limited Partnership,
KRF GP Corporation, Douglas Krupp and George Krupp) based their determination on
the same factors considered by the general partners in this regard as described
above.
DISADVANTAGES AND RISKS ASSOCIATED WITH THE TRANSACTION
Unitholders should note that affiliates of the general partners may
benefit from the transaction. This is most likely to occur if Walden Pond is
ultimately sold by the Purchaser for an amount greater than the purchase price
to be paid by it. The general partners considered the following potential
disadvantages and risks to the unitholders if the transaction is completed:
o Continued ownership of Walden Pond by the partnership could be
more economically beneficial to the unaffiliated unitholders
than the transaction if the value of the property were to
increase.
o A more favorable transaction might be available from a
third-party purchaser of Walden Pond now or in the future.
o No independent committee or entity negotiated the purchase
price for the property.
o Although an independent real estate valuation firm appraised
the value of the property, no independent person has evaluated
or rendered any opinion with respect to the fairness of the
sale of the property to unitholders unaffiliated with the
general partners.
o Unitholders will not be offered appraisal rights or
dissenters' rights in connection with the transaction.
o Unitholders may incur tax liabilities as a result of the
transaction.
CONFLICTS OF INTEREST
The general partners faced conflicts of interest with respect to the
transaction that may be in conflict with the economic interest of the
unaffiliated unitholders. Specifically, there is a conflict between the desire
of the Purchaser, an affiliate of the
13
general partners, to pay the partnership a lower price in exchange for the
property (which will result in a lower amount of proceeds payable to unitholders
in respect of their units) and the desire of unitholders unaffiliated with the
general partners to receive a higher price for the sale of the property (which
will result in a higher amount of proceeds payable to unitholders in respect of
their units).
To mitigate against these conflicts of interest, the general partners
have relied upon an independent appraisal of the property prepared by Cushman &
Wakefield. In addition, although the general partners are authorized to effect
the sale of the property to a party unaffiliated with the general partners
without the consent of the unitholders, because of these conflicts of interest
the partnership agreement requires that the consent to the sale of the property
by a majority in interest of the investor limited partnership unitholders must
be obtained before the sale can occur. Although the conflicts of interest cannot
be eliminated, the general partners believe that the undertaking of the
independent appraisal and the approval by these unitholders mitigates these
conflicts and that the transaction is procedurally fair.
Unaffiliated unitholders were not independently represented in the
negotiation of the proposed purchase and sale agreement and no independent
person or committee has evaluated or rendered any opinion with respect to the
fairness of the purchase price for the property and other terms of the sale.
While the general partners believe that the purchase price for the property and
the other terms of the sale are fair to the unitholders unaffiliated with the
general partners, there is no assurance that a more favorable price could not
have been obtained had one or more of these procedural safeguards been utilized.
INDEPENDENT APPRAISAL
EXPERIENCE OF CUSHMAN & WAKEFIELD
Cushman & Wakefield is part of a national network of affiliated full
service real estate companies providing brokerage, management, consulting and
valuation services in the United States (the "C&W Affiliated Companies"). The
clients of the C&W Affiliated Companies include major commercial and investment
banks, Fortune 500 corporations, pension funds, advisory firms and government
agencies. The Valuation Advisory Services Group of the C&W Affiliated Companies
has 21 branch offices located in various geographic regions of the United
States. This large network of professionals provides local expertise in key
markets and subsidiary-regions and enables Cushman & Wakefield to effectively
handle broad-based, multi-property assignments. Furthermore, the C&W Affiliated
Companies valuation network provides a large national database of market
information and ensures a consistent methodology for each property valuation.
The general partners selected Cushman & Wakefield based upon their expertise and
industry leadership.
The foregoing information has been provided by Cushman & Wakefield.
14
APPRAISAL
Based on its complete appraisal, as defined by the Uniform Standards of
Professional Appraisal Practice, Cushman & Wakefield determined that, subject to
the assumptions and limitations described below, the "as is" market value of
Walden Pond as of the date of the appraisal (July 20, 2001) was $12,400,000. The
appraisal report states that a marketing period of not more than twelve months
is believed to be reasonable in today's market for multi-family properties such
as Walden Pond.
Cushman & Wakefield's opinion of value is only as of July 20, 2001, the
date of the appraisal. Since that date, there may have been changes in external
or market factors or in the property itself that significantly affect property
value. Cushman & Wakefield has no obligation to update the appraisal or to
advise the partnership of any changes of which it is aware that may affect the
market value of the property since July 20, 2001.
The summary set forth below describes the material analyses employed
and assumptions made by Cushman & Wakefield in preparing the appraisal. The
partnership imposed no conditions or limitations on the scope of Cushman &
Wakefield's investigation or the methods and procedures to be followed in
preparing the appraisal.
FACTORS CONSIDERED
In preparing its valuation of the property, Cushman & Wakefield:
o inspected the exterior of all buildings and site improvements
and a representative sample of units with the resident
manager;
o reviewed leasing policy, concessions and history of recent
occupancy with the resident manager;
o reviewed a detailed history of income and expense and a budget
forecast for 2001 including the budget for planned capital
expenditures;
o conducted market research of occupancies, asking rents,
concessions and operating expenses at competing properties,
which involved interviews with on-site managers and a review
of Cushman & Wakefield's database from previous appraisal
files;
o prepared an estimate of stabilized income and expense (for
capitalization purposes);
o conducted market inquiries into recent sales of similar
properties to ascertain sales price per unit, effective gross
income multipliers and capitalization rates; and
o prepared SALES COMPARISON and INCOME CAPITALIZATION APPROACHES
to value.
SUMMARY OF CUSHMAN & WAKEFIELD'S METHODOLOGY AND APPROACHES TO VALUE
SALES COMPARISON APPROACH. The sale comparison approach uses analysis
techniques and sales of comparable improved properties in surrounding or
competing
15
areas to derive units of comparison that are then used to indicate a value for
the subject property. The primary units of comparison used in this analysis were
sales price per unit, capitalization rates and effective gross income
multipliers.
Cushman & Wakefield compared six apartment complexes with Walden Pond
that were sold between 2000 and 2001 and located in the Houston, Texas real
estate market area. Based on its qualitative analysis, Cushman & Wakefield rated
the locations of five of the six comparable properties superior to the location
of Walden Pond. Cushman & Wakefield rated the condition of two of the six
comparable properties inferior to Walden Pond, while rating the condition of
only one of the six comparable properties superior. The condition of the
remaining three comparable properties were rated similar to Walden Pond. Based
on the available data, Cushman & Wakefield concluded a value range of $29,000 to
$31,000 per unit for Walden Pond. Thus, the estimated value based on a $30,000
sales price per unit for the 416 units was approximately $12,500,000.
As part of the sales comparison approach, Cushman & Wakefield performed
the effective gross income multiplier ("EGIM") analysis. The EGIM measures the
relationship between the sales price of a property and its effective gross
income, which is the total annual income that a property would produce after an
allowance for vacancy and credit loss. Cushman & Wakefield determined that
Walden Pond was most similar to three of the six comparable apartment complexes
with EGIMs ranging from 4.66 to 5.03, with an average EGIM rounding to 4.90.
Cushman & Wakefield then applied the multiplier, 4.90, to the stabilized
effective gross income for the Walden Pond property, $2,568,673 (see Income
Approach section below), resulting in a value conclusion of approximately
$12,600,000.
Cushman & Wakefield calculated the value by the price per unit analysis
as $12,500,000, while the EGIM analysis produced a value indication of
$12,600,000. Based on all factors, Cushman & Wakefield concluded that the
reconciled value for Walden Pond under the Sales Comparison Approach was
$12,600,000.
INCOME APPROACH. The purpose of the income approach is to value an
income-producing property by analyzing likely future income and expenses to the
property.
Cushman & Wakefield employed a direct capitalization analysis on the
property by dividing a forecast of net operating income ("NOI") by an
appropriate capitalization rate, which Cushman & Wakefield believed to be 9.50%
for Walden Pond. Capitalization rates are extracted from comparable market sales
as an indication of value. Cushman & Wakefield relied on a variety of sources as
the basis of the forecast of NOI, including an analysis of the property's income
and expenses based on historical figures and comparable projects.
In its income approach, Cushman & Wakefield calculated Walden Pond's
effective gross income ("EGI") by adding apartment rental collections to other
income and then making an adjustment for vacancies and bad debt. Under this
analysis,
16
Cushman & Wakefield arrived at an EGI of $2,568,673. Once the EGI was
established, operating expenses were deducted from the EGI in order to arrive at
a NOI for Walden Pond of approximately $1,171,770. Utilizing a capitalization
rate of 9.50%, the projected NOI resulted in a prospective (stabilized) value
(after rounding) of $12,300,000.
Cushman & Wakefield also utilized a discounted cash flow method to
analyze the value of Walden Pond. Under this method, anticipated future cash
flow and a reversionary value are discounted at an appropriate rate of return to
arrive at an estimate of present value. The assumptions employed by Cushman &
Wakefield to determine the value of Walden Pond under the discount cash flow
method included: a terminal capitalization rate of 10.50%, a discount rate of
12%, a 4% cost of sale at reversion, a holding period of ten years and a rental
rate increase of 3%. Based on these assumptions, Cushman & Wakefield's estimate
of cash flows for a ten-year period resulted in an indicated value of
$12,400,000.
Using the income approach, Cushman & Wakefield determined on an as-is
(stabilized) basis that the direct capitalization method and the discounted cash
flow method indicated the value for Walden Pond was $12,400,000.
RECONCILIATION AND CONCLUSIONS OF APPRAISAL. The final step in the
appraisal process was to reconcile the sales comparison approach and the income
approach values to arrive at a final value conclusion. The reconciliation of the
two approaches involved weighing the valuation techniques in relation to their
substantiation by market and other sources of data, the relativity and
applicability of the approaches to the property type, and the purpose of the
valuation. After reconciling the various factors, Cushman & Wakefield determined
that the most appropriate technique for estimating the value of income-producing
property was an approach based primarily on income, and thus arrived at a final
"as is" market value for Walden Pond of $12,400,000.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS OF CUSHMAN & WAKEFIELD'S
VALUATION
In preparing the appraisal, Cushman & Wakefield relied, without
independent verification, on the accuracy and completeness of all information
supplied or otherwise made available to it by or on behalf of the partnership,
including property rent roll. In arriving at the appraisal, Cushman & Wakefield
assumed:
o good and marketable title to the property;
o the property was free and clear of all liens, unless otherwise
stated; o responsible ownership and competent management of
the property;
o no hidden or unapparent conditions related to the property,
its structure and its subsoil;
o the existing fault hazard band traversing the property has no
adverse effect on the property, as improved;
o full compliance with zoning and environmental laws;
17
o possession of all necessary licenses, certificates of
occupancy and other governmental consents and that the renewal
of these items is possible;
o the soundness of the structures on the property;
o the functionality of mechanical equipment and plumbing and
electrical components located and utilized by the property;
o no potentially hazardous or toxic materials were utilized in
the construction or maintenance of the property nor located at
or about the property; and
o compliance with the Americans with Disabilities Act of 1990.
Further, in its valuation of the Walden Pond Apartments Cushman & Wakefield was
not provided with building plans for property improvements and, accordingly, the
number of units and the net rentable area were based on the rent roll as well as
current floor plans and unit sizes furnished by the property's management
company. Any significant deviations that may result in a different unit count or
net rentable area could impact the value estimates. To the knowledge of the
general partners, there have been no material changes in the partnership, its
assets or any other relevant information since the date of the appraisal that
may limit the usefulness of the appraisal or otherwise affect the validity and
accuracy of the appraisal.
AN APPRAISAL IS ONLY AN ESTIMATE OF VALUE, AS OF THE SPECIFIC DATE
STATED IN THE APPRAISAL, AND IS SUBJECT TO THE ASSUMPTIONS AND LIMITING
CONDITIONS STATED IN THE APPRAISAL REPORT. AN OPINION IS NOT A MEASURE OF
REALIZABLE VALUE AND MAY NOT REFLECT THE AMOUNT WHICH WOULD BE RECEIVED IF THE
PROPERTY WAS SOLD. REFERENCE SHOULD BE MADE TO THE ENTIRE APPRAISAL REPORT.
AVAILABILITY OF REPORT
Copies of the appraisal have been filed with the Commission as an
exhibit to the Schedule 13E-3 Transaction Statement filed by the Purchaser and
affiliates. See "Where You Can Find More Information." Copies of the appraisal
for the property are also available for inspection and copying at the principal
executive offices of the partnership during regular business hours by any
interested unitholder or his or her designated representative at his or her
cost.
COMPENSATION
Cushman & Wakefield, Inc. was paid a fee of $10,000 in connection with
the appraisal. The fee paid to Cushman & Wakefield, Inc. in connection with the
appraisal was negotiated by the general partners. The Purchaser has agreed to
indemnify Cushman & Wakefield against specified liabilities arising out of the
engagement to prepare and deliver the appraisal.
Cushman & Wakefield, Inc. was engaged in July 2001 to value Walden
Pond. In 2001, 1999 and 1998, Cushman & Wakefield, Inc. provided its appraisal
services to affiliates of the general partners. Cushman & Wakefield, Inc.
received approximately $725,000 for the services provided to these affiliates.
Other than these engagements,
18
there has been no material relationship between Cushman & Wakefield, Inc. or its
affiliates and the partnership or its affiliates, nor is any material
relationship contemplated.
EFFECTS OF THE TRANSACTION
EFFECT ON THE PARTNERSHIP
If the sale is approved and the remaining conditions to the proposed
purchase and sale agreement are met or waived, the partnership will no longer
own Walden Pond but will receive $12,800,000 in cash from the Purchaser. The
proceeds of this sale will be distributed in accordance with the terms of the
partnership agreement.
On August 27, 2001, the partnership entered into a purchase and sale
agreement to sell its remaining real estate property. Although no assurance can
be given, the general partners currently expect to close that sale within 60 to
90 days after the signing of that agreement. If that transaction closes and the
sale of Walden Pond occurs, the partnership will be dissolved. If that
transaction does not close, the partnership will continue to own and operate
that property.
EFFECTS ON THE UNITHOLDERS
If the sale occurs, the unitholders will no longer own an interest in a
partnership that owns Walden Pond. However, as a result of the sale, each
unitholder will receive a cash distribution in respect of his or her unit, which
is expected to be approximately $220 to $225 per investor limited partnership
unit. In the event the sale of the partnership's other real estate property
occurs, the partnership will be dissolved and unitholders will cease to be
owners of the partnership. In such event unitholders will no longer have the
potential benefits and risks associated with ownership, and will forego the
opportunity to continue to participate as investors in the partnership,
including the right to distributions and potential appreciation of its assets
over time.
Each unitholder will recognize gain in connection with the
partnership's sale of Walden Pond equal to the excess of the amount realized by
the partnership in the sale and allocated to the unitholder over the
unitholder's adjusted tax basis in the property. See "--Material Federal Income
Tax Consequences."
EFFECTS ON THE GENERAL PARTNERS AND THEIR AFFILIATES
As a result of the sale, the general partners will receive a cash
distribution in respect of their interests, which is expected to aggregate
approximately $67,000. The proposed transaction has no effect on the allocation
of the partnership's profits and losses or cash distributions to the general
partners. Accordingly, the general partners will continue to be allocated 1% of
the profits and losses of the partnership and 1% of the cash distributions made
by the partnership. The Krupp Company
19
Limited Partnership-II, one of the general partners that also is the original
limited partner, is entitled to receive distributions from capital transactions
only after investor limited partners have received a return of their original
investment together with a specified preferred return on that investment. The
general partners do not anticipate the cumulative distributions to the investor
limited partners, including any distributions resulting from the sale, will meet
this threshold and, consequently, no distributions related to the sale will be
made to the original limited partner. Pursuant to the partnership agreement, the
original limited partner will continue to be allocated 4% of the operating
income, 0% of the operating losses and 4% of the distributions of operating cash
flows.
The general partners will not receive any fees from the partnership in
connection with the sale of the property. In addition, if the partnership
continues in operation, because the assets of the partnership will be reduced,
the fees and expenses payable to an affiliate of the general partners under the
existing management agreement described under "Information about the
Partnership, its General Partners and their Affiliates--Related Party
Transactions" likewise will be reduced.
The Purchaser will acquire the property from the partnership, will
assume the benefits and risks associated with the ownership of the property, and
will have the opportunity to defer the gain on the sale on an unrelated property
as a result of its purchase of Walden Pond. See "--Background and Purpose of the
Transaction."
FAILURE TO APPROVE THE SALE
If the sale is not approved by unitholders, the partnership will
continue to own the property and the general partners will continue to operate
the partnership in accordance with the terms of the partnership agreement and in
fulfillment of their fiduciary duties. The partnership may (1) continue to hold
the property, (2) solicit offers from potential purchasers to acquire the
property in furtherance of its liquidation strategy (which may include
affiliates of the general partners), through bid solicitation, auction or
otherwise or (3) pursue other strategies intended to enhance the value of the
unitholders' investment in the partnership.
PLANS OR PROPOSALS BY THE PARTNERSHIP
The general partners are pursuing a strategy to assess the respective
sales markets in the partnership's market areas to effect an orderly liquidation
of the partnership. The sale of Walden Pond is consistent with this strategy. In
addition, on August 27, 2001, the partnership entered into a purchase and sale
agreement to sell its remaining real estate property. If that transaction closes
and the sale of Walden Pond occurs, the partnership will be dissolved and its
assets distributed to the unitholders (after payment of all partnership
liabilities). If that transaction does not close, the general partners will
continue pursuing its strategy to effect an orderly liquidation of the
partnership and will evaluate any proposals, and may sell or dispose of its
assets, and liquidate the partnership, if attractive terms are offered.
20
PLANS OR PROPOSALS BY THE PURCHASER FOLLOWING THE SALE
The Purchaser does not have any specific plans for the sale or
disposition of Walden Pond after its acquisition. The Purchaser will, however,
evaluate any proposals and may sell or dispose of the property if attractive
terms are offered. Currently, there are no arrangements or proposals to do so.
FINANCING OF THE PURCHASE
SOURCE OF FUNDS
The purchase price to be paid to the partnership for Walden Pond by the
Purchaser is $12,800,000. Of this amount, up to $8,750,000 is expected to be
obtained from proceeds of the sale of another property owned by the Purchaser
that occurred in June 2001, which amount is currently being held in an escrow
account, and the remainder is expected to be obtained from the anticipated
refinancing of existing mortgage indebtedness on Walden Pond.
It is anticipated that the Purchaser will obtain financing from Reilly
Mortgage Capital Corporation under a loan to be secured by a mortgage on Walden
Pond, which loan will then be assigned either to the Federal National Mortgage
Association ("Fannie Mae") or the Federal Home Loan Mortgage Corporation
("Freddie Mac"). It is expected that the loan proceeds will be used to refinance
existing debt and pay associated closing costs. The Purchaser expects to have a
signed commitment letter by the date of the special meeting, however, the sale
is not contingent on the Purchaser securing financing.
The Purchaser expects to borrow approximately $4,050,000. The proposed
term of the loan is 84 months, with a proposed amortization schedule of 360
months. It is anticipated that the loan will bear an adjustable interest rate as
provided by Fannie Mae or Freddie Mac, as the case may be. It is proposed that
the interest rate index will be based on the 3-month London Interbank Offered
Rate, or "LIBOR," plus a spread. The interest rate will change every three
months based upon the LIBOR index.
It is anticipated that the loan will be prepayable in the future,
together with a prepayment premium. The Purchaser expects to pay origination
fees related to the loan and third-party costs relating to surveys, title
insurance and other closing costs. It is further anticipated that the loan
agreement will contain customary restrictive covenants and events of default.
COSTS ASSOCIATED WITH THE SALE
It is expected that approximately $4,050,000 will be required to
finance the purchase of Walden Pond, and approximately $240,000 will be required
to pay related fees and expenses. The following is an itemized statement of the
approximate amount of all expenses incurred or to be incurred in connection with
the sale transaction:
21
Financing Costs........................................$25,000
Appraisal Fee..........................................$10,000
Legal Fees............................................$100,000
Printing and mailing costs.............................$15,000
Accounting..............................................$5,000
Survey and Environmental Reports.......................$20,000
Title Insurance........................................$30,000
Proxy Solicitation Fees................................$25,000
Other, including filing fees...........................$10,000
--------
Total.................................................$240,000
The partnership will bear the following above expenses: legal fees;
appraisal fee; printing and mailing costs; title insurance; proxy solicitation
fees; and other, including filing fees. The Purchaser will bear the other
itemized expenses.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of material federal
income tax consequences of the partnership's proposed sale of Walden Pond and
the possible subsequent liquidation of the partnership if Pavillion Apartments
is sold. This summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), applicable Treasury Regulations under it, administrative rulings,
practice and procedures and judicial authority as of the date of this proxy
statement. All of the foregoing are subject to change, and any change could
affect the continuing accuracy of this summary. This summary does not discuss
all the tax consequences that may be relevant to a particular unitholder in
light of such unitholder's particular circumstances or to a unitholder subject
to special rules including nonresident aliens, foreign corporations, certain
financial institutions, regulated investment companies, insurance companies,
dealers in securities, and tax-exempt organizations. This summary also does not
discuss any aspect of state, local, foreign or other tax laws.
EACH UNITHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO THE UNITHOLDER OF THE TRANSACTION.
TAXABLE GAIN OR LOSS UPON THE SALE OF WALDEN POND
A unitholder will realize and recognize gain or loss, or a combination
of both, upon the partnership's sale of Walden Pond. The amount of gain realized
with respect to the sale of Walden Pond will be an amount equal to the excess of
the amount realized by the partnership and allocated to the unitholder (i.e.,
the cash received by the partnership) over the unitholder's adjusted tax basis
in the property. Conversely, the amount of loss realized with respect to the
sale of Walden Pond will be an amount equal to the excess of the unitholder's
tax basis over the amount realized by the partnership for the property and
allocated to the unitholder. Each unitholder must report his or her allocable
share of these gains and losses in the year in which Walden Pond is sold.
22
Each unitholder's recognized allocable share of the net partnership
section 1231 gains or losses must be netted with that unitholder's individual
section 1231 gains and losses recognized during the year in order to determine
the character of the net gains or net losses under section 1231. Section 1231
gains are those arising from the sale or exchange of "Section 1231 Property"
which means (i) depreciable assets used in a trade or business or (ii) real
property used in a trade or business and held for more than one year. Section
1231 losses are those losses arising from the sale or exchange of Section 1231
Property. A unitholder's net section 1231 gains will be treated as capital
gains, except to the extent recharacterized as ordinary income due to
depreciation recapture, and net losses will be treated as ordinary losses.
LIQUIDATION OF THE PARTNERSHIP
If, either before or after the sale of Walden Pond, the partnership
also sells its other real property, the partnership will dissolve and its assets
will be distributed to the unitholders (after payment of all partnership
liabilities). At such time the partnership's assets will consist solely of cash,
which it will distribute to the unitholders, after payment of or provision for
the partnership's liabilities, in complete liquidation of the partnership. The
partnership will not realize gain or loss upon the distribution of cash to the
unitholders in liquidation. After the partnership allocates net income or net
loss from the sale of Walden Pond (or its other property, if Walden Pond is sold
first) to the unitholders, with the concomitant tax basis adjustments, the
distribution of cash to the unitholders in liquidation will not result in tax
consequences to a unitholder to the extent the distribution does not exceed the
unitholder's federal income tax basis in his or her units. To the extent that
the amount of the distribution is in excess of such basis, such excess will be
taxed as a long-term or short-term capital gain depending on a unitholder's
holding period. See "--Capital Gains Tax."
In general, the character, as capital or ordinary, of a unitholder's
gain or loss on the liquidation of the partnership will be determined by
allocating the unitholder's amount realized in the liquidation and the
unitholder's adjusted tax basis in his or her units between "Section 751 items,"
which are "inventory items" and "unrealized receivables" (including depreciation
recapture) as defined in Code Section 751, and non-Section 751 items. The
difference between the portion of the unitholder's amount realized that is
allocable to Section 751 items and the portion of the unitholder's adjusted tax
basis in his or her units that is so allocable will be treated as ordinary
income or loss. The difference between the unitholder's remaining amount
realized and remaining adjusted tax basis will be treated as capital gain or
loss assuming the units were held by the unitholder as capital assets.
CAPITAL GAINS TAX
A unitholder's capital gain or loss, if any, upon the liquidation of
the partnership will be treated as long-term capital gain or loss if the
unitholder's holding period for his or her units exceeds one year. Under current
law, which is subject to change, long-term capital gains of individuals and
other non-corporate taxpayers generally are taxed at a maximum marginal federal
income tax rate of 20%, or 25% on recapture of the amount of
23
accelerated depreciation on real property. Capital losses are deductible only to
the extent of capital gains, except that non-corporate taxpayers may deduct up
to $3,000 of capital losses in excess of the amount of their capital gains
against ordinary income. Excess capital losses generally can be carried forward
to succeeding years -- a corporation's carryforward period is five years and a
non-corporate taxpayer can carry forward such losses indefinitely; in addition,
corporations, but not non-corporate taxpayers, are generally allowed to carry
back excess capital losses to the three preceding taxable years.
PASSIVE LOSS LIMITATIONS
A unitholder's allocable share of partnership income or loss may be
subject to the passive activity loss limitations under the Code. Unitholders who
are individuals, trusts, estates, or personal service corporations may offset
passive activity losses only against passive activity income. Unitholders who
are closely held corporations may offset passive activity losses against passive
activity income and active income, but may not offset such losses against
portfolio income. A unitholder's allocable share of any partnership gain
realized on the sale of Walden Pond will be characterized as passive activity
income.
BACKUP WITHHOLDING
Unless a unitholder complies with certain reporting and/or
certification procedures or is an exempt recipient under applicable provisions
of the Code and Treasury Regulations promulgated under the Code, the unitholder
may be subject to a 31% backup withholding tax with respect to any payments
received as a result of the sale. Backup withholding generally will not apply to
payments made to certain exempt recipients, such as a corporation or a financial
institution, or to a unitholder who furnishes a correct taxpayer identification
number or provides a certificate of foreign status and provides certain other
required information to the partnership. If backup withholding applies, the
amount withheld is not an additional tax, but is credited against that
unitholder's U.S. federal income tax liability.
THE FOREGOING DISCUSSION IS INTENDED TO BE A SUMMARY OF CERTAIN INCOME
TAX CONSIDERATIONS OF THE SALE OF WALDEN POND AND THE POSSIBLE SUBSEQUENT
LIQUIDATION OF THE PARTNERSHIP. EACH UNITHOLDER SHOULD CONSULT HIS OR HER OWN
TAX ADVISOR CONCERNING HIS OR HER PARTICULAR TAX CIRCUMSTANCES AND THE FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO THE UNITHOLDER OF THE SALE
OF WALDEN POND AND THE POSSIBLE SUBSEQUENT LIQUIDATION OF THE PARTNERSHIP.
24
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements (the "Unaudited
Pro Forma Financial Statements") give effect to the sale of Fenland Field
Apartments ("Fenland") and the proposed sale of Walden Pond Apartments
("Walden") by the partnership. The Unaudited Pro Forma Financial Statements were
prepared by management using balances as of and for the six months ended June
30, 2001 and for the year ended December 31, 2000 and other available financial
information as of the date of this proxy statement.
On August 1, 2001, the partnership sold its entire interest in Fentil,
Inc., the owner of Fenland, to Home Properties of New York, L.P., an
unaffiliated party, for $14,500,000.
The partnership has presented a Pro Forma Consolidated Balance Sheet at
June 30, 2001 and Pro Forma Consolidated Statements of Operations for the six
months ended June 30, 2001 and for the year ended December 31, 2000. See Note 1
to the Unaudited Pro Forma Financial Statements for further discussion of this
matter.
In management's opinion, all adjustments necessary to reflect the above
discussed transactions have been made. The Unaudited Pro Forma Financial
Statements are not necessarily indicative of what actual results of operations
of the partnership would have been for the periods presented, nor do they
purport to represent the partnership's results of operations for future periods.
25
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 2001
ASSETS
As Reported On Sale of Fenland Proposed Sale of
Form 10-Q at June Field Pro Forma Walden Pond Pro Pro Forma at
30, 2001 Adjustments Forma Adjustments June 30, 2001
(Note 1) (Note 1) (Note 1) (Note 1)
-------------------- ----------------- ------------------- -----------------
Multi-family apartment
complexes, net of
accumulated depreciation
of $27,159,374 $ 9,536,020 $ (2,262,689) $ (4,002,956) $ 3,270,375
Cash and cash equivalents 1,003,837 10,870,887 6,757,873 18,632,597
Real estate tax escrows 540,702 (186,232) (174,198) 180,272
Prepaid expenses and other
assets 136,110 (88,455) (18,596) 29,059
Investment in securities 95,516 -- -- 95,516
Deferred expense, net of
accumulated amortization
of $359,216 22,938 (3,235) (19,703) --
-------------------- ----------------- ------------------- -----------------
Total assets $ 11,335,123 $ 8,330,276 $ 2,542,420 $ 22,207,819
==================== ================= =================== =================
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $ 16,048,491 $ (3,638,185) $ (5,850,127) $ 6,560,179
Due to affiliates 38,789 (4,879) 6,938 40,848
Other Liabilities 922,000 (172,992) (293,184) 455,824
-------------------- ----------------- ------------------- -----------------
Total liabilities 17,009,280 (3,816,056) (6,136,373) 7,056,851
Partners' deficit (5,674,157) 12,146,332 8,678,793 15,150,968
-------------------- ----------------- ------------------- -----------------
Total liabilities and partners'
deficit $ 11,335,123 $ 8,330,276 $ 2,542,420 $ 22,207,819
==================== ================= =================== =================
See accompanying note to
Unaudited Pro Forma Financial Statements
26
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2001
As Reported on Sale of
Form 10-Q for the Fenland Field Proposed Sale of Pro Forma for the
Six Months Ended Pro Forma Walden Pond Pro Six Months Ended
June 30, 2001 Adjustments Forma Adjustments June 30, 2001
(Note 1) (Note 1) (Note 1) (Note 1)
------------------- ---------------- ------------------- ---------------------
Revenue:
Rental $ 3,645,187 $(1,128,924) $ (1,202,119) $ 1,314,144
Other income 28,719 (2,465) (17,034) 9,220
------------------- ---------------- ------------------- ---------------------
Total revenue 3,673,906 (1,131,389) (1,219,153) 1,323,364
------------------- ---------------- ------------------- ---------------------
Expenses:
Operating 993,860 (266,528) (345,398) 381,934
Maintenance 273,418 (104,441) (74,014) 94,963
Real estate taxes 379,314 (71,211) (149,494) 158,609
Management fees 153,669 (52,669) (46,333) 54,667
General and
administrative 194,898 -- -- 194,898
Depreciation and
amortization 814,295 (212,937) (349,453) 251,905
Interest 750,192 (173,906) (248,835) 327,451
------------------- ---------------- ------------------- ---------------------
Total expenses 3,559,646 (881,692) (1,213,527) 1,464,427
------------------- ---------------- ------------------- ---------------------
Income (loss) before
minority interest 114,260 (249,697) (5,626) (141,063)
Minority interest (1,451) -- 56 (1,395)
------------------- ---------------- ------------------- ---------------------
Net income (loss) $ 112,809 $ (249,697) $ (5,570) $ (142,458)
=================== ================ =================== =====================
See accompanying note to
Unaudited Pro Forma Financial Statements
27
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2000
As Reported on
Form 10-K for the Sale of Fenland Proposed Sale of Pro Forma for the
Year Ended Field Pro Forma Walden Pond Pro Year Ended December
December 31, 2000 Adjustments Forma Adjustments 31, 2000
(Note 1) (Note 1) (Note 1) (Note 1)
------------------- ----------------- ------------------ ---------------------
Revenue:
Rental $ 7,213,565 $(2,132,922) $ (2,471,303) $ 2,609,340
Other income 77,044 (5,600) (37,470) 33,974
------------------- ----------------- ------------------ ---------------------
Total revenue 7,290,609 (2,138,522) (2,508,773) 2,643,314
------------------- ----------------- ------------------ ---------------------
Expenses:
Operating 1,846,098 (478,146) (682,414) 685,538
Maintenance 557,813 (234,844) (125,393) 197,576
Real estate taxes 816,275 (161,188) (342,673) 312,414
Management fees 291,677 (95,239) (93,778) 102,660
General and
administrative 222,339 -- -- 222,339
Depreciation and
amortization 1,676,566 (407,497) (732,123) 536,946
Interest 1,543,174 (361,673) (592,379) 589,122
------------------- ----------------- ------------------ ---------------------
Total expenses 6,953,942 (1,738,587) (2,568,760) 2,646,595
------------------- ----------------- ------------------ ---------------------
Income (loss) before
minority interest 336,667 (399,935) 59,987 (3,281)
Minority interest (2,682) -- (600) (3,282)
------------------- ----------------- ------------------ ---------------------
Net income (loss) $ 333,985 $ (399,935) $ 59,387 $ (6,563)
=================== ================= ================== =====================
See accompanying note to
Unaudited Pro Forma Financial Statements
28
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
NOTE TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The Unaudited Pro Forma Consolidated Balance Sheet at June 30, 2001 is
based on the historical Consolidated Balance Sheet of the partnership
as reported on Form 10-Q for the quarter ended June 30, 2001. The
Fenland Field Pro Forma Adjustments represent an adjustment to the
partnership's financial statements to show the effect of the sale of
Fenland Field, which occurred on August 1, 2001. The Walden Pond Pro
Forma Adjustments represent an adjustment to the partnership's
financial statements to show the effect of the proposed sale of Walden
Pond. The Pro Forma at June 30, 2001 column reflects the balance sheet
as if both sales had occurred as of June 30, 2001.
The Unaudited Pro Forma Consolidated Statement of Operations for the
six months ended June 30, 2001 is based on the historical Consolidated
Statement of Operations of the partnership as reported on Form 10-Q for
the six months ended June 30, 2001. The Pro Forma Consolidated
Statement of Operations for the year ended December 31, 2000 is based
on the historical Consolidated Statement of Operations for the
partnership as presented in the annual report on Form 10-K for the year
ended December 31, 2000. The Fenland Field Pro Forma Adjustments
represent Fenland Field's net income for the respective periods
presented. The Walden Pond Pro Forma Adjustments represent Walden
Pond's net income for the respective periods presented. The Unaudited
Pro Forma Consolidated Statements of Operations for the six months
ended June 30, 2001 and for the year ended December 31, 2000 reflect
the results of operations of the partnership as if the partnership had
sold both Walden Pond and Fenland Field prior to January 1, 2000. The
Pro Forma Consolidated Statements of Operations do not reflect any gain
or loss which may be recognized by the partnership as a result of the
sales.
29
UNAUDITED PRO FORMA STATEMENT OF CASH FROM PROPOSED
CAPITAL TRANSACTION AVAILABLE FOR DISTRIBUTION
The following Unaudited Pro Forma Statement of Cash from Proposed
Capital Transaction Available for Distribution (the "Unaudited Pro Forma
Statement of Cash") gives effect to the proposed sale of Walden Pond by the
partnership. The Unaudited Pro Forma Statement of Cash was prepared by
management using balances as of June 30, 2001 and other available financial
information as of the date of this proxy statement.
The Unaudited Pro Forma Statement of Cash is presented as if all
significant activities related to the following transactions had occurred on
June 30, 2001: (i) the consummation of the proposed sale of Walden Pond on the
terms set forth in the proposed purchase and sale agreement between the
partnership and the purchaser; (ii) the repayment of existing mortgage financing
on the property in accordance with its terms; and (iii) the distribution of
available cash from the proposed capital transaction.
30
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
UNAUDITED PRO FORMA CASH FROM PROPOSED CAPITAL TRANSACTION
AVAILABLE FOR DISTRIBUTION
Walden Pond as of Sale of Payoff of
June 30, 2001 Property (A) Mortgages (B)
-------------------- -------------------- --------------------
Multi-family apartment complexes, net $ 4,002,956 $ (4,002,956) $ --
Cash and cash equivalents -- 12,608,000 (5,850,127)
Real estate tax escrows 174,198 -- --
Prepaid expenses and other assets 18,596 -- --
Deferred expense, net 19,703 -- --
---------------- ---------------- ---------------
Total assets $ 4,215,453 $ 8,605,044 $ (5,850,127)
================ ================ ===============
Liabilities:
Mortgage notes payable $ 5,850,127 -- $ (5,850,127)
Due to affiliates (6,938) -- --
Other liabilities 293,184 -- --
---------------- ---------------- ---------------
Total liabilities 6,136,373 -- (5,850,127)
Partners' deficit (1,920,920) -- --
---------------- ---------------- ---------------
Total liabilities and partners' deficit $ 4,215,453 -- $ (5,850,127)
================ ================ ===============
Estimated cash available for
distribution
Pro Forma Cash
from Proposed
Capital
Transaction
Other Available for
Adjustments (C) Distribution
------------------ ----------------
Multi-family apartment complexes, net -- $ --
Cash and cash equivalents -- 6,757,873
Real estate tax escrows -- 174,198
Prepaid expenses and other assets -- 18,596
Deferred expense, net (19,703) --
------------------ ----------------
Total assets $ (19,703) $ 6,950,667
================== ================
Liabilities:
Mortgage notes payable -- $ --
Due to affiliates -- (6,938)
Other liabilities -- 293,184
------------------ ----------------
Total liabilities -- 286,246
Partners' deficit 1,920,920 --
------------------ ----------------
Total liabilities and partners' deficit $ 1,920,920 $ 286,246
================== ================
Estimated cash available for
distribution $ 6,664,421
================
[Table continues on next page]
31
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
UNAUDITED PRO FORMA CASH FROM PROPOSED CAPITAL TRANSACTION
AVAILABLE FOR DISTRIBUTION
(Continued)
% of estimated cash available to investor limited partners 99.00%
% of estimated cash available to original limited partner 0.00%
% of estimated cash available to general partners, per
general partner interests 1.00%
Estimated cash available to general partners, per general
partner interests $66,644.21
Estimated cash available to original limited partner $0.00
Estimated cash available to investor limited partners $ 6,597,776.79
Number of investor limited partner units outstanding 30,000
Estimated distribution per investor limited partner unit $219.93
The accompanying notes are an integral part of the
Unaudited Pro Forma Cash from Capital Transactions Available for Distribution
32
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
Notes to Unaudited Pro Forma Cash from Capital Transactions
Available for Distribution
1. Represents adjustments to record real estate property at its estimated
realizable value based on the purchase and sale agreement adjusted as
follows:
Sale price per purchase and sale agreement $ 12,800,000
Less:
Estimated property disposition costs (1.5%) (192,000)
------------
Estimated net realizable value $12,608,000
===========
2. Represents adjustments to record the payoff of the first and second
mortgages on the property as follows:
First Mortgage $ 4,980,927
Second Mortgage 869,200
------------
Total Mortgage Payoff $ 5,850,127
============
3. Represent adjustments for items on the Balance Sheet with no cash
value.
33
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT
OF NET ASSETS IN LIQUIDATION
The partnership is in the process of effecting an orderly liquidation
of its real estate investments. Under the partnership agreement, the sale of the
partnership's last remaining property would be classified as a "terminating
capital transaction" and result in the dissolution of the partnership and the
subsequent distribution of its assets in accordance with the partnership
agreement.
On August 1, 2001, the partnership sold its entire interest in one of
its three multi-family apartment complexes known as Fenland Field Apartments to
an unaffiliated party. On August 27, 2001, the partnership entered into a
purchase and sale agreement to sell its entire interest in another of its
multi-family apartment complexes known as Pavillion Apartments to an
unaffiliated party. Although no assurance can be given, the general partners
currently expect to close the sale of Pavillion within 60 to 90 days after the
signing of that agreement. If the Pavillion transaction closes and the sale of
Walden Pond occurs, the partnership will be dissolved and its assets distributed
in accordance with the partnership agreement.
The general partners believe it is unlikely that the sale of Pavillion
will occur before the special meeting that is the subject of this proxy
statement and, consequently, the terminating capital transaction will occur
after the proposed sale of Walden Pond. However, the general partners believe
that information regarding a full liquidation of the partnership would be useful
to the unitholders in their evaluation of the proposed transaction.
The Unaudited Pro Forma Consolidated Statement of Net Assets in
Liquidation is presented in this proxy statement solely because the general
partners believe that the terminating capital transaction event is likely to
occur within 30 days following the consummation of the proposed sale of Walden
Pond.
The valuation of the partnership's assets and liabilities necessarily
requires estimates and assumptions by management (see "Significant Assumptions"
below). In addition, there are substantial uncertainties in carrying out any
liquidation plan. The actual value of any liquidating distributions would depend
upon a variety of factors including, but not limited to, the actual proceeds
from the sale of any of the partnership's assets, the ultimate settlement
amounts of the partnership's liabilities and obligations, actual costs incurred
in connection with carrying out the liquidation, including costs of liquidation
and establishing reserves, and the actual time of the distributions. The value
and liabilities ultimately realized in any liquidation could differ from the
amounts shown below and the difference could be material. THERE CAN BE NO
ASSURANCE THAT THE NET ASSETS IN LIQUIDATION PER INVESTOR LIMITED PARTNER UNIT
PRESENTED BELOW WILL BE REALIZED IF THE PARTNERSHIP WERE TO BE LIQUIDATED.
34
The Unaudited Pro Forma Consolidated Statement of Net Assets in
Liquidation as of June 30, 2001 and related notes should be read in conjunction
with the partnership's historical consolidated financial statements and notes
thereto. See "Financial Statements."
SIGNIFICANT ASSUMPTIONS. The Unaudited Pro Forma Consolidated Statement
of Net Assets in Liquidation as of June 30, 2001 was prepared using historical
unaudited balances as of June 30, 2001 and was based, in part, on certain
assumptions, including without limitation, the following:
o The sale of Pavillion and Walden Pond had occurred as of June
30, 2001.
o The value of the partnership's multi-family apartment
complexes consisted of (i) the actual sales price of Fenland
Field, (ii) the proposed sales price of Walden Pond described
in this proxy statement and (iii) the proposed sales price of
Pavillion as set forth in the applicable purchase and sale
agreement. However, the actual sales price of Pavillion is
subject to reduction as a result of the buyer's due diligence
investigation.
o All mortgage notes payable would be paid off at the time of
sale of the relevant property.
o No brokerage fee would be paid to the general partners under
the terms of the partnership agreement related to commissions
payable upon the sale of the partnership's properties.
35
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF NET ASSETS
IN LIQUIDATION
June 30, 2001
Historical
Balances Pro Forma Pro Forma
(Unaudited) Adjustments Balances
------------------- ------------------- -------------------
ASSETS
------
Multi-family apartment complexes $ 9,536,020 $ 32,693,826 (A) $ 42,229,846
Cash and cash equivalents 1,003,837 1,003,837
Real estate tax escrows 540,702 540,702
Prepaid expenses and other assets 136,110 136,110
Investment in securities 95,516 (95,516) (B) --
Deferred expenses 22,938 (22,938) (C) --
------------------- ------------------ -------------------
Total assets $ 11,335,123 $ 32,575,372 $ 43,910,495
=================== ================== ===================
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
Mortgage notes payable $ 16,048,491 $ -- $ 16,048,491
Due to affiliates 38,789 -- 38,789
Other liabilities 922,000 (83,823) (B) 838,177
------------------- ------------------ -------------------
Total liabilities 17,009,280 (83,823) 16,925,457
Partners' deficit (5,674,157) 5,674,157 (D) -
------------------- ------------------ -------------------
Total liabilities and partners' deficit $ 11,335,123 $ 5,590,334 $ 16,925,457
=================== ================== ===================
Net assets in liquidation $ 26,985,038
===================
Allocation to general partners (1%) $ 269,850
===================
Allocation to investor limited partners $ 26,715,188
Number of investor limited partner units 30,000
-------------------
Net assets in liquidation per investor
limited partner unit $ 891
===================
36
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
NET ASSETS IN LIQUIDATION
June 30, 2001
A. Represents adjustments to record the Fenland Field, Walden Pond and
Pavillion properties at their estimated net realizable value based on
the gross sales prices indicated in the respective purchase and sale
agreements:
B. Aggregate gross selling price for multi- $ 42,872,940
family apartment complexes
Estimated property disposition costs
(1.5% of gross selling price) (643,094)
---------------
Net realizable value $ 42,229,846
===============
B. Represents adjustments to record investment in securities and its
related deferred revenue at their estimated net realizable value and
estimated settlement amount, respectively. Management has ascribed no
net realizable value and no settlement amount to the asset and
liability, respectively.
C. Represents adjustments to record deferred expenses to their estimated
net realizable value. Management has ascribed no net realizable value
to these assets.
D. Represents adjustment to partners' deficit for the pro forma effect of
the liquidation.
37
THE SPECIAL MEETING
SPECIAL MEETING; RECORD DATE
The sale of Walden Pond to the Purchaser and the related amendment to
the partnership's partnership agreement require approval of a majority of the
holders of outstanding investor limited partnership units (excluding any such
units owned by the general partners or their affiliates). A special meeting of
the unitholders will be held on _________, 2001, at One Beacon Street, Suite
1500, Boston, Massachusetts 02108, at 10:00 a.m. local time, to consider and
vote upon the sale and the amendment. In accordance with the partnership
agreement, the close of business on _________, 2001 has been established as the
record date for the special meeting. Only unitholders of record on the record
date are eligible to vote their units on the proposals set forth in this proxy
statement. A unitholder of record as of the record date will retain the right to
vote even if the unitholder sells or transfers his or her units after the record
date. As of the record date, the partnership had 30,000 investor limited
partnership units outstanding and entitled to vote, held of record by 1,406
unitholders. A list of the unitholders entitled to vote at the special meeting
will be available for inspection at the executive offices of the partnership at
One Beacon Street, Suite 1500, Boston, Massachusetts 02108. Valid voting
requires a quorum constituted by a majority in interest of the unitholders
voting at the special meeting in person or by proxy.
Even if a unitholder intends to attend the special meeting in person,
the unitholder is requested to complete and return the enclosed proxy card
promptly.
PROCEDURES FOR COMPLETING PROXIES
Accompanying this proxy statement is a proxy card solicited by the
general partners for use at the special meeting. When a proxy card is returned,
properly executed, the units represented by it will be voted at the special
meeting by the general partners in the manner specified on the proxy card. It is
important that unitholders mark, sign and date their proxy card and return it
either in the enclosed, postage-prepaid envelope or by facsimile as instructed
below to Krupp Funds Group as soon as possible. When voting a proxy by
facsimile, the entire proxy must be transmitted. Delivery of a proxy does not
prohibit unitholders from attending the special meeting. To be properly
executed, the proxy card must be signed by and bear the date of signature of the
unitholder voting the units represented by the card. All questions as to the
form of documents and the validity of consents will be determined by the general
partners, which determinations shall be final and binding. The general partners
reserve the right to waive any defects or irregularities in any proxy.
Each unit entitles the holder thereof to one vote with respect to the
proxies solicited by this document. Only unitholders of record on the record
date may grant a proxy with respect to their units.
38
IF UNITS STAND OF RECORD IN THE NAMES OF TWO OR MORE PERSONS, ALL
PERSONS MUST SIGN THE PROXY CARD. WHEN SIGNING AS AN ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE THE FULL TITLE OF THE POSITION
HELD. IF A CORPORATION, THE PROXY SHOULD BE SIGNED BY THE PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN THE PARTNERSHIP'S NAME BY
AN AUTHORIZED PERSON. IF A UNITHOLDER'S UNITS ARE HELD IN THE NAME OF A
BROKERAGE FIRM, BANK, NOMINEE OR OTHER INSTITUTION, ONLY THIS INSTITUTION CAN
SIGN A PROXY WITH RESPECT TO THE UNITS AND CAN DO SO ONLY AT THE UNITHOLDER'S
DIRECTION. ACCORDINGLY, IF ANY UNITS ARE SO HELD, UNITHOLDERS SHOULD CONTACT
THEIR ACCOUNT REPRESENTATIVE AND GIVE INSTRUCTIONS FOR A PROXY TO BE SIGNED WITH
RESPECT TO THEIR UNITS.
A unitholder in favor of the sale and the amendment to the
partnership's partnership agreement should mark the "FOR" box on the enclosed
proxy card, date and sign the proxy and either mail it promptly in the enclosed
postage-prepaid envelope or fax a copy to Krupp Funds Group as instructed below.
If a proxy card is executed but no indication is made as to what action is to be
taken, it will be deemed to constitute a vote "FOR" the sale and "FOR" the
amendment. By consenting to the sale and the amendment, a unitholder irrevocably
appoints the general partners, or their designee, as his or her attorney-in-fact
to execute and deliver those documents as are necessary to effect the sale and
the amendment in accordance with the terms of the partnership agreement.
Questions and requests for assistance or for additional copies of this
proxy statement and the proxy card may be directed to the partnership's
solicitation agent, Krupp Funds Group, One Beacon Street, Suite 1500, Boston,
Massachusetts 02108, Attention: Investor Services, or by telephone at
1-800-255-7877 or facsimile at 617-423-8919. Unitholders should also use this
fax number for delivery of their completed proxy cards. In addition to
soliciting proxies by mail, proxies may be solicited in person and by telephone.
Unitholders may also contact their broker, dealer, commercial bank, trust
company or other nominee for assistance concerning the proxy solicitation.
VOTES REQUIRED
The vote of unitholders owning a majority of the investor limited
partnership units (excluding any such units owned by the general partners or
their affiliates) is necessary to approve the sale of Walden Pond to the
Purchaser and the related amendment to the partnership agreement. Each unit
entitles the holder thereof to one vote on each matter submitted to a vote of
the unitholders. If a majority in interest of such unitholders consent to the
sale and the amendment to the partnership agreement and certain other conditions
are met, the sale and the amendment will be completed. If both the sale and the
amendment are not approved by unitholders owning a majority of the investor
limited partnership units, the sale will not be completed.
The consent of the unitholders holding a majority in interest of the
outstanding investor limited partnership units is necessary to complete the sale
and adopt the
39
amendment. Failure to return a proxy in a timely manner or to vote at the
special meeting, abstention from voting or a broker non-vote will each have the
same effect as a vote "against" the sale and "against" the amendment. Therefore,
unitholders are asked to please date, sign and promptly return their proxy
cards.
SOLICITATION PROCEDURES
The partnership has retained Krupp Funds Group to act as solicitation
agent and for advisory services in connection with this proxy statement. In
connection therewith, Krupp Funds Group will be paid reasonable and customary
compensation and will be reimbursed for its reasonable out-of-pocket expenses.
The partnership has also agreed to indemnify Krupp Funds Group against specified
liabilities and expenses including liabilities and expenses under federal
securities laws.
The partnership will not pay any fees or commissions to any broker or
dealer or other person, other than to Krupp Funds Group, for soliciting proxies
in this solicitation. Banks, brokerage houses and other custodians, nominees and
fiduciaries will be requested to forward the solicitation materials to the
customers for whom they hold units, and the partnership will reimburse them for
reasonable mailing and handling expenses incurred by them in forwarding proxy
materials to their customers.
REVOCATION OF PROXIES
A proxy executed and delivered by a unitholder may subsequently be
revoked by submitting written notice of revocation to the partnership. A
revocation may be in any written form, including a later-dated proxy card,
validly signed by a unitholder as long as it clearly states that the
unitholder's proxy previously given is no longer effective. To prevent
confusion, the notice of revocation must be dated. Notices of revocation should
be delivered to Krupp Funds Group at the address or by facsimile as listed
above. A unitholder may also revoke its proxy by attending the special meeting
and voting in person. If a unitholder signs, dates and delivers a proxy to the
partnership and, thereafter, on one or more occasions, signs and delivers a
later-dated proxy, the latest-dated proxy card is controlling as to the
instructions indicated in that proxy and supersedes the unitholder's prior proxy
as embodied in any previously submitted proxy card.
APPRAISAL RIGHTS
Neither the partnership agreement nor Massachusetts law provides rights
of appraisal or similar rights to unitholders whether or not unitholders abstain
or vote for or against the sale. As a result, if unitholders holding a majority
of the investor limited partnership units approve the sale and if the sale is
completed, all such holders, including those who do not approve the sale, will
receive a distribution, which is expected to be approximately $220 to $225 per
investor limited partnership unit, in accordance with the partnership agreement.
40
THE PURCHASE AND SALE AGREEMENT
The purchase and sale agreement between the partnership and the
Purchaser will be entered into only if the unitholders approve the amendment to
the partnership's partnership agreement. Under the proposed purchase and sale
agreement, the sale of the property to the Purchaser will not take place unless
the unitholders approve the sale. If the sale is approved at the special
meeting, the general partners on behalf of the partnership intend to enter into
an agreement substantially in the form of the purchase and sale agreement. The
material provisions of the purchase and sale agreement are summarized below.
Although complete in all material respects, this summary is qualified by
reference to the full text of the purchase and sale agreement attached to this
proxy statement as Appendix A. If all of the conditions in the purchase and sale
agreement are met, principally the approval by the unitholders of the sale, the
partnership will sell Walden Pond to the Purchaser.
PURCHASE
The purchase and sale agreement provides for the sale by the
partnership to the Purchaser of Walden Pond for a purchase price of $12,800,000
and the assumption by the Purchaser of all liabilities relating to Walden Pond.
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
The purchase and sale agreement contains no representations and
warranties. The Purchaser is purchasing the property "as is."
COVENANTS
The purchase and sale agreement provides for customary apportionment
between the parties of income and expense items relating to the property.
The Purchaser is responsible for all recording and filing fees and
charges, and the partnership is responsible for all title insurance charges.
The partnership is obligated to operate the property in the ordinary
course consistent with past practice until the closing.
In the event of fire or other casualty affecting the property, subject
to the Purchaser's right to terminate the purchase and sale agreement described
below under "Termination" if the loss is material, the partnership is required
to assign to the Purchaser its rights to any insurance proceeds.
CONDITIONS TO THE SALE
Before the purchase is completed, the following must occur:
41
o the holders of a majority of the outstanding investor limited
partnership units must approve the sale (excluding any such
units owned by the general partners or their affiliates); and
o any consent, approval or waiver of any third party required in
order for the Purchaser or the partnership to complete the
sale must be obtained (which consents have been obtained).
In addition, unless waived by the parties, the sale will not be
completed if the following has occurred:
o the enactment, promulgation or enforcement by any governmental
entity of a statute, regulation or injunction which prohibits
or restrains the sale or subjects any party to substantial
damage as a result of the sale.
CLOSING
The closing of the sale is scheduled to occur on the first business day
after the conditions to closing have been satisfied; PROVIDED, that the
Purchaser has a one-time right to reschedule the closing to a date that is not
later than 60 days following the scheduled closing date.
TERMINATION
The purchase and sale agreement may be terminated:
o by agreement of the parties at any time;
o by either party if the sale has not occurred by December 6,
2001; or
o by the Purchaser if a fire or other casualty has resulted in a
"material" (I.E., 10%) portion of Walden Pond being destroyed
or significantly damaged.
THE AMENDMENT TO THE PARTNERSHIP AGREEMENT
PURPOSE
The purpose of the amendment is to amend the partnership's partnership
agreement to permit the partnership to enter into the purchase and sale
agreement and to complete the sale. Except for specifically enumerated
transactions, the partnership agreement prohibits the partnership from selling
any property to, or entering into any agreement or arrangement with, a general
partner or an affiliate of a general partner. Because the Purchaser is an
affiliate of the general partners, these prohibitions prevent the partnership
from entering into the purchase and sale agreement with and selling Walden Pond
to the Purchaser.
42
THE AMENDMENT
The description of the amendment to the partnership agreement
summarized above is qualified in its entirety by reference to the text of the
amendment attached to this proxy statement as Appendix B. Unitholders are
encouraged to read the amendment carefully.
In accordance with the amendment, the parties must enter into the
purchase and sale agreement after August 15, 2001 and before December 6, 2001.
The amendment adds the purchase and sale agreement to the list of the
transactions which the partnership is permitted to complete with an affiliate of
the general partners; otherwise, the amendment does not alter the partnership
agreement.
INFORMATION ABOUT THE PARTNERSHIP,
ITS GENERAL PARTNERS AND THEIR AFFILIATES
THE PARTNERSHIP
The partnership was formed on December 1, 1982 as a limited partnership
under Massachusetts law. The partnership is governed by its partnership
agreement, which vests exclusive management and control over the partnership in
the general partners, subject to the rights of the unitholders to vote on
limited matters. The address of the partnership's principal executive office is
at One Beacon Street, Suite 1500, Boston, Massachusetts 02108, and the telephone
number is (617) 523-7722.
The primary business of the partnership is to acquire, operate and
ultimately dispose of real property.
The partnership issued all of its general partner interests to its two
general partners, The Krupp Corporation and The Krupp Company Limited
Partnership-II ("Krupp LP"). The partnership also issued its original limited
partner interests to Krupp LP. On January 18, 1983, the partnership commenced an
offering of up to 30,000 units at a price of $1,000 per unit. As of March 31,
1983, the partnership received subscriptions for all 30,000 units and the public
offering was successfully completed on that date.
THE GENERAL PARTNERS
The general partners of the partnership are The Krupp Corporation, a
Massachusetts corporation, and Krupp LP, a Massachusetts limited partnership.
The principal business address of each of the general partners is One Beacon
Street, Suite 1500, Boston, Massachusetts 02108. The principal business of each
of the general partners is to act as a general partner of the partnership. The
directors and principal executive officers of The Krupp Corporation are Douglas
Krupp, George Krupp, Frank Apeseche and David Quade, and the sole shareholders
of The Krupp Corporation are Douglas Krupp and George Krupp. The general
partners of Krupp LP are Douglas Krupp, George Krupp and The Krupp Corporation.
43
Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive
Officer of The Berkshire Companies Limited Partnership, an integrated real
estate financial services firm engaged in real estate acquisitions, mortgage
banking, investment sponsorship, venture capital investing, financial
management, commercial laundry and linen services, and furniture manufacturing
and sales.
Mr. Krupp has held the position of Co-Chairman since The Berkshire
Companies was established as The Krupp Companies in 1969 and he has served as
the Chief Executive Officer since 1992. Mr. Krupp serves as a Director of Krupp
Government Income Trust and Krupp Government Income Trust-II and he is also a
member of the Board of Trustees at Brigham & Women's Hospital. He is a graduate
of Bryant College where he received an honorary Doctor of Science in Business
Administration in 1989 and was elected trustee in 1990. Mr. Krupp's address is
at One Beacon Street, Suite 1500, Boston, Massachusetts 02108.
George Krupp is actively involved in the management of The Berkshire
Companies and affiliated entities. Mr. Krupp has been an instructor of history
at the New Jewish High School in Waltham, Massachusetts since September of 1997.
Mr. Krupp attended the University of Pennsylvania and Harvard University and
holds a master's degree in History from Brown University. Mr. Krupp's address is
at One Beacon Street, Suite 1500, Boston, Massachusetts 02108.
Frank Apeseche is President of The Berkshire Group. From 1995 to 2000,
he was the founding Managing Partner of BG Affiliates, a venture capital
investing company affiliated with The Berkshire Group. From 1993 to 1995 Mr.
Apeseche was Chief Financial Officer of The Berkshire Group and the company's
Chief Planning Officer from 1986-1993. Before joining The Berkshire Group in
1986, Mr. Apeseche was a manager with Anderson Consulting where he specialized
in providing technology solutions to Fortune 500 clients. He received a Bachelor
of Arts degree with distinction from Cornell University and a Masters of
Business Administration degree with honors from the University of Michigan.
David Quade is Executive Vice President and Chief Financial Officer of
The Berkshire Group. Prior to joining The Berkshire Group, Mr. Quade was a
principal and Chief Financial Officer for eighteen years at Leggat McCall
Properties. He received a P.A.P. from Northwestern University Graduate Business
School and an M.B.A. and a B.S. from Central Michigan University.
DESCRIPTION OF THE ASSETS
GENERAL
As of December 31, 2000, the partnership indirectly owned three
multi-family apartment complexes known as the Fenland Field Apartments, the
Pavillion Apartments and the Walden Pond Apartments, having an aggregate of
1,000 apartment units. On August 1, 2001, the partnership sold Fenland Field
Apartments. A summary of the partnership's real estate investments as of
December 31, 2000 is presented below:
44
Year of Total Average Occupancy For the Year Ended
Description Acquisition Units December 31,
----------- ----------- ----- ------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Fenland Field Apartments 1983 234 95% 97% 99% 100% 98%
Columbia, Maryland
Pavillion Apartments 1983 350 94% 95% 96% 95% 95%
Garland, Texas
Walden Pond Apartments 1983 416 89% 94% 97% 98% 95%
---
Houston, Texas
1,000
=====
On August 27, 2001, the partnership entered into a purchase and sale
agreement to sell Pavillion Apartments.
The properties owned by the partnership are pledged as collateral for
non-recourse mortgage notes. Mortgage notes payable consisted of the following
as at December 31, 2000 and 1999:
Annual
Property Principal Interest Rate Maturity Date
-------- --------- ------------- -------------
2000 1999
---- ----
Fenland Field Apartments $ 3,720,715 $ 3,873,996 9.25% June 1, 2002
Walden Pond Apartments 5,903,327 5,986,927 See below November 1, 2002
Pavillion Apartments 6,600,604 6,677,204 9.25% May 1, 2001
------------- -------------
Total $ 16,224,646 $ 16,538,127
============= =============
FENLAND FIELD APARTMENTS
This property is subject to a non-recourse mortgage note payable, based
on a 20-year amortization, in equal monthly installments of principal and
interest of $42,167. At maturity, all unpaid principal ($3,824,206) and any
accrued and unpaid interest are due. The mortgage note is prepayable subject to
certain prepayment premiums. The mortgage note is collateralized by the
property.
As of December 31, 2000, the general partners had signed agreements
extending the term of the mortgage note to June 1, 2002. The partnership paid an
extension fee of $5,000 for this privilege.
45
Based on the borrowing rates currently available to the partnership for
bank loans with similar terms and average maturities, the fair value of
long-term debt was approximately $3,863,000 and $3,903,000 at December 31, 2000
and 1999, respectively.
On August 1, 2001, the partnership sold Fenland Field Apartments and
received $14,500,000, less repayment of the existing mortgage note and closing
costs.
WALDEN POND APARTMENTS
This property is subject to two non-recourse mortgage notes payable,
one in the principal amount of $5,500,000 and the other in the principal amount
of $900,000. The notes bear interest at a rate equal to 0.5% per annum less than
the prime rate. The notes are being amortized with monthly principal payments of
$6,500 and $1,100, respectively. The notes were originally scheduled to mature
on February 28, 2001. On November 9, 2000, the maturity date of the notes was
extended until November 1, 2002. The partnership paid an extension fee of
$29,555 for this privilege. The $5,500,000 note is prepayable without penalty
upon 45 days written notice. The $900,000 note is prepayable without penalty,
upon 45 days written notice, and simultaneous payment of the other note.
Because the interest rate on Walden Pond's debt fluctuates with market
rates, the book value of the mortgage approximates fair market value.
PAVILLION APARTMENTS
This property is subject to a non-recourse mortgage note payable, based
on a 30-year amortization, in equal monthly installments of principal and
interest of $57,587. At maturity, all unpaid principal ($6,580,326), and any
accrued and unpaid interest are due. The note is prepayable at any time, subject
to certain prepayment premiums.
Based on the borrowing rates currently available to the partnership for
bank loans with similar terms and average maturities, the fair value of
long-term debt was approximately $6,654,000 and $6,771,000 at December 31, 2000
and 1999, respectively.
Due to restrictions on transfers and prepayment, the partnership may be
unable to refinance certain mortgage notes payable at such calculated fair
value.
On April 27, 2001, the general partners signed an agreement extending
the term of the mortgage note payable on Pavillion to May 1, 2002. The
partnership paid an extension fee of $32,969 for this privilege.
As of December 31, 2000, the aggregate scheduled principal amounts of
long-term borrowings due during the five years ending December 31, 2005 are
$6,860,678, $9,363,967, $0, $0, and $0, respectively.
The partnership paid interest on its mortgage notes of $1,542,659,
$1,422,506 and $1,154,453 during the year ended December 31, 2000, 1999 and
1998, respectively.
46
DISTRIBUTIONS
The table below sets forth the distributions made by the partnership to
its unitholders for the six months ended June 30, 2001 and during the years
ended December 31, 2000 and 1999.
Six Months Ended
June 30, Year Ended December 31,
2001 2000 1999
--------------------- ------------------ -------------------
Limited partners: Amount Per Unit Amount Per Unit Amount Per Unit
------- -------- ------ -------- ------ --------
Investor limited partners
(30,000 Units outstanding)........ $370,295 12.34 $740,589 $24.69 $740,590 $24.69
Original limited partner.............. 15,591 31,182 31,183
General partners...................... 3,898 7,796 7,796
---------- --------- ---------
Total.......................... 389,784 $779,567 $779,569
Future distributions, if any, will be at the discretion of the
partnership and will be determined after consideration of a number of factors
including, among others, the partnership's financial condition, cash flows and
current and anticipated cash needs.
OWNERSHIP OF UNITS
The number of holders of investor limited partnership units as of June
30, 2001 was approximately 1,406. The general partners own 101 of the 30,000
investor limited partnership units and 100 general partnership units, which
general partnership units generally represent a 1% economic interest in the
partnership.
47
As of September 12, 2001, beneficial owners of record owning more than
5% of the partnership's 30,000 outstanding units were as follows:
Title Name and Address Amount and Nature
of Of of
Class Beneficial Owner Beneficial Ownership Percent Of Class
----- ---------------- -------------------- ----------------
Investor Limited Madison Avenue Investment Partners, LLC
Partner Units P.O. Box 7533
Incline Village, NV 89452 2,218.30 Units (1) (2) 7.39%
Investor Limited First Equity Realty, LLC
Partner Units 555 Fifth Avenue, 9th Floor
New York, NY 10017 2,218.30 Units (1) (3) 7.39%
Investor Limited The Harmony Group II, LLC
Partner Units P.O. Box 7533
Incline Village, NV 89452 2,218.30 Units (1) (4) 7.39%
Investor Limited Ronald M. Dickerman
Partner Units 555 Fifth Avenue, 9th Floor
New York, NY 10017 2,218.30 Units (1) (5) 7.39%
Investor Limited Bryan E. Gordon
Partner Units P.O. Box 7533
Incline Village, NV 89452 2,218.30 Units (1) (6) 7.39%
Investor Limited Equity Resources Group, Incorporated
Partner Units 14 Story Street
Cambridge, MA 02138 1,704.50 Units (7) 5.68%
(1) According to the statement on Schedule 13G originally filed on December
6, 1999 by Madison Avenue Investment Partners, LLC("MAIP"), First
Equity Realty , LLC ("First Equity"), The Harmony Group II, LLC
("Harmony Group"), Ronald M. Dickerman and Bryan E. Gordon
(collectively, the "Reporting Persons"), as amended by Amendment No. 1
thereto dated February 11, 2000, as further amended by Amendment No. 2
thereto dated February 14, 2001 (as amended, the "Madison Schedule
13G"), each of MAIP, First Equity, Harmony Group and the Reporting
Persons may be deemed to constitute a "group" within the meaning of
Section 13(d)(3) of the Exchange Act. According to the Madison Schedule
13D, MAIP is the controlling person of various entities which are the
nominee owners of, or the successors by merger to the assets of nominee
owners of, the partnership's investor limited partnership units. As
stated in the Madison Schedule 13G, these nominees, none of which
beneficially own 5% or more of the units, are ISA Partnership Liquidity
Investors, Madison/AG Partnership Value Partners III, Cobble Hill
Investments, LP, Madison Liquidity Investors 100, LLC, Madison
Liquidity Investors 103, LLC and Madison Liquidity Investors 111, LLC.
According to the Madison Schedule 13G, the controlling members of MAIP
are The Harmony Group II, LLC, a Delaware limited liability company of
which Bryan E. Gordon is the Managing Member, and First Equity Realty,
LLC, a New York limited liability company of which Ronald M. Dickerman
is the Managing Member.
(2) According to the Madison Schedule 13G, Madison Avenue Investment
Partners, LLC has sole voting and dispositive power with respect to
2,218.30 units of the partnership.
48
(3) According to the Madison Schedule 13G, First Equity Realty, LLC has
shared voting and dispositive power with respect to 2,218.30 units of
the partnership.
(4) According to the Madison Schedule 13G, The Harmony Group II, LLC has
shared voting and dispositive power with respect to 2,218.30 units of
the partnership.
(5) According to the Madison Schedule 13G, Ronald M. Dickerman has shared
voting and dispositive power with respect to 2,218.30 units of the
partnership.
(6) According to the Madison Schedule 13G, Bryan E. Gordon has shared
voting and dispositive power with respect to 2,218.30 units of the
partnership.
(7) According to the statement on Schedule 13D originally filed on December
12, 1996 by Equity Resources Group, Incorporated, Equity Resource
Cambridge Fund Limited Partnership, Equity Resource General Fund
Limited Partnership, Equity Resource Fund XVI Limited Partnership,
Equity Resource Fund XVII Limited Partnership, Equity Resource Fund XIX
Limited Partnership, James E. Brooks, Marks S. Thompson and Eggert
Dagbjartsson as amended by Amendment No. 1 thereto dated April 14, 1997
(as amended, the "Equity Resources Schedule 13D"), Equity Resources
Group, Incorporated, James E. Brooks, Mark S. Thompson and Eggert
Dagbjartsson, in their capacities as general partners of each of Equity
Resource Cambridge Fund Limited Partnership, Equity Resource General
fund Limited Partnership, Equity Resource Fund XVI Limited Partnership,
Equity Resource Fund XVII Limited Partnership and Equity Resource Fund
XIX Limited Partnership, respectively, share the power to vote or
direct the vote and to dispose of or direct the disposition of 1,704.5
units of the partnership.
MARKET FOR THE UNITS
The units are not traded on any established trading market and no
market of this type is expected to develop. Thus, limited information is
available regarding market prices for the units.
In April 2000, a third party offered to acquire units at a price of
$500 per unit, less the amount of any distributions paid after January 2000.
That offer expired in May 2000. In early October 2000, another third party
offered to acquire units at a price of $370 per unit, less the amount of any
distributions paid after the date of the offer. That offer expired in late
October 2000. In November 2000, another third party offered to acquire units at
a price of $380 per unit, less the amount of any distributions paid after the
date of the offer. That offer expired in January 2001. In January 2001, another
third party offered to acquire units at a price of $400 per unit, less any
distributions paid after the date of the offer. That offer has no express
termination date. During the period when all of the foregoing offers were made,
the partnership owned three multi-family apartment complexes. It currently owns
only two properties. Accordingly, the above prices are not necessarily
indicative of a price that a third party might make at this time.
According to The Partnership Spectrum, an independent third-party
industry publication, for the period between October 1, 2000 to May 31, 2001,
ten trades occurred in which a total of 242 units traded at prices ranging from
$460 to $550 per unit. These trades occurred at a time when the partnership
owned three multi-family apartment complexes. It currently owns only two
properties. In addition, unitholders are advised that the gross sales prices
reported by The Partnership Spectrum do not necessarily reflect the net sales
proceeds received by sellers of units, which typically are reduced by
49
commissions and other secondary market transaction costs to amounts less than
the reported prices. Also, other measures of the value of units may be relevant
to unitholders.
RELATED PARTY TRANSACTIONS
Pursuant to the partnership's partnership agreement, the general
partners are entitled to cash distributions in respect of their interests in the
partnership. The general partners have received aggregate cash distributions in
respect of these interests of $7,796, $7,796 and $29,182 for the years ended
December 31, 2000, 1999 and 1998, respectively, and $3,898 for the six months
ended June 30, 2001.
Pursuant to a management agreement, the managing agent of the
partnership's properties, BRI OP Limited Partnership, which is an affiliate of
the general partners, receives property management fees in return for its
management of the properties. The management agreements provide for the payment
of monthly management fees payable at the rate of 5% of rents and other income
actually received by the partnership. In addition, although the general partners
and its affiliates do not receive any fees from the partnership for the
partnership administration services provided to the partnership, the managing
agent and other affiliates of the general partners are reimbursed by the
partnership for expenses incurred in connection with the provision of services
including accounting, computer, insurance, travel, payroll, and legal services
and the preparation and mailing of reports and other communication to
unitholders. For the three years ended December 31, 2000, 1999 and 1998, and for
the six months ended June 30, 2001, the partnership paid such affiliate property
management fees and reimbursement of expenses aggregating $587,153, $540,592,
$562,837 and $423,657 respectively.
Pursuant to the partnership agreement, the general partners are
entitled to receive a brokerage fee equal to 3% of the gross sales price in
connection with the sale of the partnership's property provided that such fee
does not exceed 50% of the competitive real estate commission in the area where
the property is located. The payment of such fee is subordinated to the payment
in full to the unitholders of their total "invested capital" and "cumulative
return" as described in the partnership agreement. No fee will be payable to the
general partners in connection with the sale of Walden Pond.
50
SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding
the partnership's results of operations and financial position. This information
should be read in conjunction with the consolidated financial statements and
notes to those statements and other financial information included or
incorporated by reference in this document. The historical financial data as of
and for the quarters ended June 30, 2001 and 2000 have been derived from the
unaudited financial statements included in the partnership's Quarterly Report on
Form 10-Q for the quarters ended June 30, 2001 and 2000, respectively. The
historical financial data for the years ended December 31, 2000, 1999, 1998,
1997 and 1996 have been derived from the audited financial statements included
in the partnership's Annual Report on Form 10-K for the year ended December 31,
2000. See "Where You Can Find More Information."
Six Months Ended June 30,
-------------------------
2001 2000
---- ----
Total Revenue 3,673,906 3,627,323
Income (loss) before gain on
sale of property and
extraordinary loss 112,809 233,342
Gain on sale of property -- --
Extraordinary Loss -- --
Net Income (loss) 112,809 233,342
Net income (loss) allocated to:
Investor Limited
Partners 107,169 221,675
Per Unit 3.57 7.39
Original Limited Partner 4,512 9,334
General Partners 1,128 2,333
Total assets at
December 31,
For the Year Ended December 31,
----------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total Revenue $ 7,290,609 $ 7,052,216 $ 7,169,243 $ 7,721,285 $ 7,307,643
Income (loss) before gain on
sale of property and
extraordinary loss 333,985 464,369 574,090 157,116 (156,880)
Gain on sale of property -- -- 2,960,743 -- --
Extraordinary Loss -- -- (389,523) -- --
Net Income (loss) 333,985 464,369 3,145,310 157,116 (156,880)
Net income (loss) allocated to:
Investor Limited
Partners 317,286 441,150 3,090,894 149,260 (149,306)
Per Unit 10.58 14.71 103.03 4.98 (4.97)
Original Limited Partner 13,359 18,575 22,964 6,285 (6,275)
General Partners 3,340 4,644 31,452 1,571 (1,569)
Total assets at
December 31, 12,017,592 12,588,568 13,245,952 16,718,318 17,605,712
[Table continues on next page]
52
Six Months Ended June 30,
-------------------------
2001 2000
---- ----
Long-term obligations at
December 31
Distributions:
Investor Limited
Partners 370,295 370,295
Per Unit 12.34 12.34
Original Limited Partner 15,591 15,591
General Partners 3,898 3,898
For the Year Ended December 31,
----------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Long-term obligations at
December 31 9,363,967 12,496,331 10,552,809 19,544,471 19,429,196
Distributions:
Investor Limited
Partners 740,589 740,590 2,853,592 1,119,903 2,419,804
Per Unit 24.69 24.69 95.12 37.33 80.66
Original Limited Partner 31,182 31,183 35,369 47,158 47,158
General Partners 7,796 7,799 29,182 11,790 24,920
Operating results for the periods presented are not comparable due to the sale
of Indian Run Apartments on March 31, 1998.
The per unit distributions for the years ended December 31, 2000, 1999, 1998,
1997 and 1996 were $24.69, $24.69, $95.12, $37.33 and $80.66, respectively, of
which $0, $0, $67.12, $0 and $43.33 represented a return of capital.
Prior performance of the partnership is not necessarily indicative of future
operations.
53
INFORMATION CONCERNING THE PURCHASER AND ITS AFFILIATES
THE PURCHASER
The Purchaser, Walden Pond Limited Partnership, is a Delaware limited
partnership formed to acquire, own and manage real property. The principal
office and place of business of the Purchaser is One Beacon Street, Suite 1500,
Boston, Massachusetts 02108.
AFFILIATES OF THE PURCHASER
The sole general partner of the Purchaser is Walden Pond Texas, L.L.C.,
a Texas limited liability company whose principal business is to hold general
partner interests in the Purchaser. The sole member of Walden Pond Texas is WPT
Limited Partnership, an Illinois limited partnership whose principal business is
to hold membership interests in Walden Pond Texas. The sole general partner of
WPT is KRF GP Corporation, a Massachusetts corporation, whose sole shareholders
are Douglas Krupp and George Krupp. The principal office and place of business
of Walden Pond Texas, WPT and KRF GP is One Beacon Street, Suite 1500, Boston,
Massachusetts, 02108. See "Information About the Partnership, Its General
Partners and Their Affiliates."
The Purchaser, Walden Pond Texas, WPT, KRF GP and the general partners
are under the common control of Douglas Krupp and George Krupp. As a result of
this affiliation, the Purchaser, WPT, KRF GP, Douglas Krupp and George Krupp may
be deemed to each beneficially own indirectly 101 of the 30,000 investor limited
partnership units and 100 general partnership units, which general partnership
units generally represent a 1% economic interest in the partnership.
All information contained in this proxy statement concerning the
Purchaser and its affiliates is based upon statements and representations made
by the Purchaser or its representatives to the partnership or its
representatives.
WHERE YOU CAN FIND MORE INFORMATION
GENERAL
The partnership files reports with the Securities and Exchange
Commission an a regular basis. Unitholders may read or copy any document that
the partnership files with the Commission at the Commission's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Unitholders may obtain
information about the Public Reference Room by calling the Commission for
further information at 1-800-SEC-0330. The partnership's Commission filings are
also available from the Commission's web site at www.sec.gov.
The following documents previously filed by the partnership with the
Securities and Exchange Commission are incorporated in this proxy statement by
reference:
54
(a) Annual Report on Form 10-K for the year ended December 31,
2000;
(b) Quarterly Reports on Form 10-Q for the quarters ended March
31, 2001 and June 30, 2001; and
(c) Current Report on Form 8-K filed August 6, 2001.
All documents filed by the partnership pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of this
document and before the date of the special meeting or any adjournment or
postponement of the meeting will be deemed to be incorporated by reference and
made a part of this document from the date of the filing of these documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference in this document will be deemed to be modified or superseded for
purposes of this proxy statement to the extent that a statement contained in
this document or in any other document subsequently filed with the Commission
which also is deemed to be incorporated by reference in this document modifies
or supersedes the statement. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part of this proxy
statement.
The Purchaser, Walden Pond Texas, WPT, KRF GP, the general partners,
Douglas Krupp and George Krupp, are affiliates of the partnership. Accordingly,
together with the partnership, they have jointly filed with the Commission a
Schedule 13E-3 Transaction Statement. This proxy statement does not contain all
of the information contained in the Schedule 13E-3, some of which is omitted as
permitted by Commission rules. Statements made in this proxy statement, while
complete in all material respects, are qualified by reference to documents filed
as exhibits to the Schedule 13E-3. The Schedule 13E-3, including exhibits, is
available for inspection and copying at the Commission as described above.
The Purchaser and the general partners are not public companies and are
not required to file reports of any type with the Commission.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and financial statement schedule
of the partnership appearing in this proxy statement have been audited by
PricewaterhouseCoopers LLP, independent auditors, as set forth in their report
included in this document. These consolidated financial statements and financial
statement schedule are included in this document and incorporated in this
document by reference.
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants............................................F-2
Consolidated Balance Sheets
December 31, 2000 and 1999...................................................F-3
Consolidated Statements of Operations
For the Year Ended December 31, 2000, 1999, and 1998.........................F-4
Consolidated Statements of Changes In Partners' Deficit
For the Year Ended December 31, 2000, 1999, and 1998.........................F-6
Consolidated Statements of Cash Flows
For the Year Ended December 31, 2000, 1999, and 1998.........................F-7
Notes to Consolidated Financial Statements..............................F-8-F-17
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2000......................................................F-18-F-19
Consolidated Balance Sheets
June 30, 2001 (Unaudited) and December 31, 2000.............................F-20
Consolidated Statements of Operations
for Three and Six Months Ended June 30, 2001 and 2000 (Unaudited)...........F-21
Consolidated Statements of Cash Flows
for Six Months Ended June 30, 2001 and 2000 (Unaudited).....................F-23
Notes to Consolidated Financial Statements (Unaudited).................F-24-F-26
All other schedules are omitted as they are not applicable, not required, or the
information is provided in the consolidated financial statements or the notes
thereto.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Krupp Realty Limited Partnership-IV and Subsidiaries:
In our opinion, the consolidated financial statements listed
in the accompanying index present fairly, in all material respects, the
financial position of Krupp Realty Limited Partnership-IV and Subsidiaries (the
"Partnership") at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 19, 2001
F-2
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
ASSETS
2000 1999
-------------- --------------
Multi-family apartment complexes,
net of accumulated depreciation
of $26,362,441 and $24,736,628,
respectively (Note F) $10,139,898 $10,774,104
Cash and cash equivalents (Note C) 740,853 856,738
Real estate tax escrows 723,394 679,584
Prepaid expenses and other assets
(Notes B & I) 277,631 221,644
Investment in Securities (Note D) 95,516 -
Deferred expenses, net of accumulated
amortization of $341,854 and
$291,101, respectively 40,300 56,498
-------------- --------------
Total assets $12,017,592 $12,588,568
============== ==============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable (Note F) $16,224,646 $16,538,127
Due to affiliates (Note I) - 33,723
Other liabilities (Note G) 1,190,128 968,318
-------------- --------------
Total liabilities 17,414,774 17,540,168
Partners' deficit (Note H):
Investor Limited Partners
(30,000 Units outstanding) (3,702,397) (3,279,094)
Original Limited Partner (1,382,261) (1,364,438)
General Partners (312,524) (308,068)
-------------- --------------
Total partners' deficit (5,397,182) (4,951,600)
-------------- --------------
Total liabilities and
partners' deficit $12,017,592 $12,588,568
============== ==============
The accompanying notes are an integral part of
the consolidated financial statements.
F-3
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2000, 1999, and 1998
-----
2000 1999 1998
-------------- -------------- -------------
Revenue:
Rental $7,213,565 $6,989,114 $7,066,401
Interest income (Note C) 77,044 63,102 102,842
-------------- -------------- -------------
Total revenue 7,290,609 7,052,216 7,169,243
-------------- -------------- -------------
Expenses:
Operating (Notes E and I) 1,846,098 1,830,422 1,916,491
Maintenance 557,813 594,780 606,271
Real estate taxes 816,275 701,956 724,018
Management fees (Note I) 291,677 271,555 287,049
General and administrative
(Note I) 222,339 225,045 138,201
Depreciation and amortization 1,676,566 1,537,145 1,762,642
Interest (Note F) 1,543,174 1,422,506 1,154,453
-------------- -------------- -------------
Total expenses 6,953,942 6,583,409 6,589,125
-------------- -------------- -------------
Income before minority interest,
gain on sale of property
and extraordinary loss 336,667 468,807 580,118
Minority interest (2,682) (4,438) (6,028)
Gain on sale of property (Note E) - - 2,960,743
-------------- --------------- ------------
Income before extraordinary loss 333,985 464,369 3,534,833
Extraordinary loss from early
extinguishment of debt (Note E) - - (389,523)
-------------- --------------- ------------
Net income (Note J) $333,985 $464,369 $3,145,310
============== =============== ============
Allocation of net income (Note H):
Investor Limited Partners
(30,000 Units outstanding):
Income before gain on sale
of property and
extraordinary loss $317,286 $441,150 $545,386
Gain on sale of property - - 2,931,136
Extraordinary loss - - (385,628)
-------------- --------------- ------------
Net income $317,286 $441,150 $3,090,894
============== =============== ============
Continued
F-4
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS, Continued
For the Year Ended December 31, 2000, 1999, and 1998
-----
2000 1999 1998
-------------- --------------- ------------
Investor Limited Partners,
Per Unit:
Income before gain on sale
of property and
extraordinary loss $10.58 $14.71 $18.18
Gain on sale of property - - 97.70
Extraordinary loss - - (12.85)
-------------- --------------- ------------
Net income $10.58 $14.71 $103.03
============== =============== ============
Original Limited Partner:
Income before gain on sale
of property and
extraordinary loss $13,359 $18,575 $22,964
Gain on sale of property - - -
Extraordinary loss - - -
-------------- --------------- ------------
Net income $13,359 $18,575 $22,964
============== =============== ============
General Partners:
Income before gain on sale
of property and
extraordinary loss $3,340 $4,644 $5,740
Gain on sale of property - - 29,607
Extraordinary loss - - (3,895)
-------------- --------------- ------------
Net income $3,340 $4,644 $31,452
============== =============== ============
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the Year Ended December 31, 2000, 1999, and 1998
-----
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Deficit
----------- ------------ ----------- ------------
Balance at $(3,216,956) $(1,339,425) $(307,186) $(4,863,567)
December 31, 1997
Net income 3,090,894 22,964 31,452 3,145,310
Distributions (2,853,592) (35,369) (29,182) (2,918,143)
Balance at ----------- ------------ ----------- ------------
December 31, 1998 (2,979,654) (1,351,830) (304,916) (4,636,400)
Net income 441,150 18,575 4,644 464,369
Distributions (740,590) (31,183) (7,796) (779,569)
----------- ------------ ----------- ------------
Balance at
December 31,1999 (3,279,094) (1,364,438) (308,068) (4,951,600)
Net income (Note H) 317,286 13,359 3,340 333,985
Distributions
(Note H) (740,589) (31,182) (7,796) (779,567)
----------- ------------ ----------- ------------
Balance at
December 31, 2000 $(3,702,397) $(1,382,261) $(312,524) $(5,397,182)
=========== ============ =========== ============
The per Unit distributions for the years ended December 31, 2000, 1999 and 1998
were $24.69, $24.69 and $95.12, respectively, of which $0, $0 and $67.12
represented a return of capital, respectively.
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 2000, 1999, and 1998
-----
2000 1999 1998
--------- --------- ----------
Cash flows from operating activities:
Net income $ 333,985 $ 464,369 $3,145,310
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 1,676,566 1,537,145 1,762,642
Interest earned on repair escrow - - (12,898)
Gain on sale of property - - (2,960,743)
Extraordinary loss from early
extinguishment of debt - - 389,523
Changes in assets and liabilities:
Decrease (increase) in prepaid
expenses and other assets (99,797) (105,521) 23,019
Increase (decrease) in other
liabilities 134,187 23,850 (276,153)
Increase (decrease) in due to
affiliates (33,723) 22,989 (30,837)
Releases from real estate tax
and insurance escrows due to
sale of property - - 33,722
--------- --------- ----------
Net cash provided by
operating activities 2,011,218 1,942,832 2,073,585
--------- --------- ----------
Cash flows from investing activities:
Deposits to replacement reserve escrow - - (10,769)
Withdrawals from replacement reserve
escrow - - 315,159
Release from replacement reserve
escrows due to sale of property - - 11,493
Additions to fixed assets (991,607) (661,282) (1,085,983)
Increase (decrease) in other
liabilities for fixed asset additions (7,893) 5,899 1,994
Proceeds from sale of property, net - - 5,711,482
--------- --------- ----------
Net cash (used in)
provided by investing
activities (999,500) (655,383) 4,943,376
--------- --------- ----------
Cash flows from financing activities:
Principal payments on mortgage notes
payable (313,481) (394,922) (756,495)
Repayment of mortgage notes payable - - (2,638,042)
Decrease (increase) in deferred
expenses (34,555) (30,450) 3,191
Payment of prepayment premium - - (335,863)
Distributions (779,567) (779,569) (2,918,143)
--------- --------- ----------
Net cash used in financing
activities (1,127,603) (1,204,941) (6,645,352)
--------- --------- ----------
Net (decrease) increase in cash and cash
equivalents (115,885) 82,508 371,609
Cash and cash equivalents, beginning of the
year 856,738 774,230 402,621
--------- --------- ----------
Cash and cash equivalents, end of year $ 740,853 $ 856,738 $ 774,230
========= ========= ==========
Non-cash investing activities:
Investment in securities $95,516 - -
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
A. ORGANIZATION
Krupp Realty Limited Partnership-IV ("KRLP-IV") was formed on December
1, 1982 by filing a Certificate of Limited Partnership in The
Commonwealth of Massachusetts. KRLP-IV terminates on December 31, 2020,
unless earlier terminated upon the sale of the last of KRLP-IV and
Subsidiaries' properties or the occurrence of certain other events as
set forth in the Partnership Agreement.
KRLP-IV issued all of the General Partner Interests to The Krupp
Corporation, a Massachusetts corporation, and The Krupp Company Limited
Partnership-II, a Massachusetts limited partnership, in exchange for
capital contributions aggregating $1,000. Except under certain limited
circumstances upon termination of KRLP-IV, the General Partners are not
required to make any additional capital contributions. KRLP-IV also
issued all of the Original Limited Partner Interests to The Krupp
Company Limited Partnership-II in exchange for a capital contribution
of $4,000. The Original Limited Partner is not required to make any
additional capital contributions to KRLP-IV. On January 18, 1983,
KRLP-IV commenced the offering of up to 30,000 Units of Investor
Limited Partner Interests (the "Units"). As of March 31, 1983, KRLP-IV
received subscriptions for all 30,000 Units at $1,000 per Unit and
therefore, the public offering was successfully completed on that date.
In 1990, the General Partners on behalf of KRLP-IV formed three limited
partnerships: Pavillion Partners, Ltd., Copper Creek Partners, Ltd. and
Westbridge Partners, Ltd. At the same time, the General Partners
transferred ownership of Pavillion Apartments to Pavillion Partners,
Ltd., Copper Creek Apartments to Copper Creek Partners, Ltd., and
Walden Pond Apartments to Westbridge Partners, Ltd. in exchange for
KRLP-IV's 99% Limited Partner Interest in the new entities. Westcop
Corporation, an affiliate of the General Partners, contributed a total
of $11,216 in cash to the entities and is the General Partner in each,
with a 1% interest. On March 3, 1992, Copper Creek was foreclosed upon
by the holder of the first and second mortgage notes pursuant to an
agreement approved by the Bankruptcy Court.
KRLP-IV, Pavillion Partners, Ltd., and Westbridge Partners, Ltd. are
collectively known as Krupp Realty Limited Partnership-IV and
Subsidiaries (collectively the "Partnership").
As of December 31, 2000, the Partnership owned three multi-family
apartment complexes.
B. SIGNIFICANT ACCOUNTING POLICIES
The Partnership uses the following accounting policies for financial
reporting purposes, which may differ in certain respects from those
used for federal income tax purposes (see Note J).
Continued
F-8
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
B. SIGNIFICANT ACCOUNTING POLICIES, continued
BASIS OF PRESENTATION
The consolidated financial statements present the consolidated assets,
liabilities and operations of Pavillion Partners, Ltd., Westbridge
Partners, Ltd. and KRLP-IV (see Note
A). All intercompany balances and transactions have been eliminated. At
December 31, 2000 and 1999, minority interest of $8,589 and $11,271,
respectively, were included in other assets.
RISKS AND UNCERTAINTIES
The Partnership invests its cash primarily in deposits and money market
funds with commercial banks. The Partnership has not experienced any
losses to date on its invested cash.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities, contingent assets and liabilities and
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS
The Partnership includes all short-term investments with maturities of
three months or less from the date of acquisition in cash and cash
equivalents. The cash investments are recorded at cost, which
approximates current market values.
RENTAL REVENUE
Leases require the payment of base rent monthly in advance. Rental
revenues are recorded on the accrual basis.
REAL ESTATE
Real estate assets and equipment are stated at depreciated cost.
Pursuant to Statement of Financial Accounting Standards Opinion No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", impairment losses are recorded on long-lived
assets used in operations on a property by property basis, when events
and circumstances indicate that the real estate assets might be
impaired and the estimated undiscounted cash flows, without interest
charges, to be generated by those assets are less than the carrying
amount of those assets. Upon determination that an impairment has
occurred, those assets shall be reduced to fair value.
Expenditures for ordinary maintenance and repairs are expensed to
operations as they are incurred. Significant renovations and
improvements which improve or extend the useful life of the assets are
capitalized. Except for amounts attributed to land, rental property and
improvements are depreciated over their estimated useful lives using
the straight-line method. The estimated useful lives by asset category
are:
Continued
F-9
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
B. SIGNIFICANT ACCOUNTING POLICIES, continued
REAL ESTATE, continued
The consolidated financial statements present the consolidated assets,
liabilities and operations of Pavillion Partners, Ltd., Westbridge
Partners, Ltd. and KRLP-IV (see Note
Buildings and improvements 3 to 25 years
Appliances, carpeting and equipment 3 to 8 years
The Partnership classifies assets as available for sale upon the
General Partners committing to a formal plan of disposal. The
Partnership is in the process of determining the marketability of the
Partnership's real estate assets but the General Partners have not
committed to a formal plan of disposition and therefore no properties
have been classified as available for sale.
DEFERRED EXPENSES
Costs of obtaining and recording mortgages on the properties are
amortized over the term of the related mortgage notes using the
straight-line method which approximates the effective interest method.
INCOME TAXES
The Partnership is not liable for federal or state income taxes as
Partnership's income or loss is allocated to the Partners for income
tax purposes. In the event that the Partnership's tax returns are
examined by the Internal Revenue Service or state taxing authority and
the examination results in a change in Partnership taxable income or
loss, such change will be reported to the Partners.
DESCRIPTIVE INFORMATION ABOUT REPORTABLE SEGMENTS
The Partnership operates and develops apartment communities which
generate rental and other income through the leasing of apartment
units. The General Partners separately evaluate the performance of each
of the Partnership's apartment communities. However, because each of
the apartment communities have similar economic characteristics,
facilities, services and tenants, the apartment communities have been
aggregated into a single dominant apartment communities segment.
All revenue is from external customers and no revenue are generated
from transactions with other segments. There are no tenants which
contributed 10% or more of the Partnership's total revenue during 2000,
1999 or 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of financial Accounting standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires recognition of all
derivative instruments as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. This
statement will be effective for the Partnership beginning January 1,
2001. The Partnership did not hold any derivative instruments at
December 31, 2000, and as such, the Partnership does not expect this
pronouncement to have a significant impact on the Partnership's
financial statements.
Continued
F-10
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
B. SIGNIFICANT ACCOUNTING POLICIES, continued
INVESTMENT IN SECURITIES
The investment in securities is carried at its original issuance
valuation as the common stock is not listed or traded on an exchange
and is not considered a marketable security pursuant to Statement of
Financial Standards Opinion No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (FAS 115").
C. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
December 31, December 31,
2000 1999
------------ ------------
Cash and money market accounts $740,853 $856,738
======== ========
D. INVESTMENT IN SECURITIES
On October 5, 2000, the Partnership, as a member of an alliance of
major multifamily real estate companies, executed a master lease
agreement ("MLA") with a provider of high-speed internet, video and
voice services to multifamily communities. Pursuant to the MLA, the
Partnership granted the provider preferred lease, license and access
rights to provide data services, consisting of high-speed broadband
internet access, and video services, to the residents at some of its
multifamily communities for a ten year period. In exchange for these
rights, the Partnership received 366,691 shares of common stock which
were valued at $.2285 per share or $83,823. In addition, the
Partnership will receive 7.5% of the gross revenues that the provider
obtains from providing its services as well as a fixed amount for each
resident that executes a subscriber agreement. In conjunction with the
execution of the MLA, the Partnership made an investment of $8,406 in
exchange for 36,785 additional shares of common stock also valued at
$.2285 per share. The Partnership incurred approximately $3,287 in
closing costs related to the acquisition by the Partnership and the
closing costs incurred were recorded as an investment in securities in
the financial statements as of December 31, 2000.
E. SALE OF INDIAN RUN APARTMENTS
On March 31, 1998, the Partnership sold Indian Run Apartments ("Indian
Run"), a 256-unit multi-family apartment complex, located in Abilene,
Texas, to an unaffiliated third party. The Partnership received
$5,850,000, less repayment of the mortgage note payable and interest of
$2,658,664 and closing costs of $138,518. For financial reporting
purposes, the Partnership realized a gain of $2,960,743 on the sale.
The gain was calculated as the difference between the property's
selling price less net book value of the property and closing costs.
Continued
F-11
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
E. SALE OF INDIAN RUN APARTMENTS, continued
In conjunction with the sale of the property on March 31, 1998, the
Partnership prepaid the mortgage note. As a result of the retirement of
debt, the Partnership incurred a prepayment premium of $335,863. The
prepayment premium, as well as unamortized deferred mortgage costs of
$53,660, are reported in the Consolidated Statement of Operations as an
extraordinary loss from early extinguishment of debt.
F. MORTGAGE NOTES PAYABLE
The properties owned by the Partnership are pledged as collateral for
the respective non-recourse mortgage notes payable outstanding at
December 31, 2000 and 1999. Mortgage notes payable consisted of the
following:
Principal Annual
-------------------------------- Interest
Property 2000 1999 Rate Maturity Date
------------------------- ------------ ----------- ----------- ----------------
Fenland Field Apartments $ 3,720,715 $ 3,873,996 9.25% June 1, 2002
Walden Pond Apartments 5,903,327 5,986,927 See below November 1, 2002
Pavillion Apartments 6,600,604 6,677,204 9.25% May 1, 2001
----------- -----------
Total $16,224,646 $16,538,127
=========== ===========
FENLAND FIELD APARTMENTS
The property is subject to a non-recourse mortgage note payable, based
on a 20-year amortization, in equal monthly installments of principal
and interest of $42,167. At maturity, all unpaid principal ($3,824,206)
and any accrued and unpaid interest are due.
The note may be prepaid subject to certain prepayment premiums. The
mortgage note is collateralized by the property.
Based on the borrowing rates currently available to the Partnership for
bank loans with similar terms and average maturities, the fair value of
long-term debt is approximately $3,863,000 and $3,903,000 at December
31, 2000 and 1999, respectively.
As of December 31, 2000 the General Partners had signed agreements
extending the mortgage note payable, under the original terms, until
June 1, 2002. The Partnership paid an extension fee of $5,000 for this
privilege.
Continued
F-12
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
F. MORTGAGE NOTES PAYABLE, continued
WALDEN POND APARTMENTS
On February 28, 1992, the prior wrap-around mortgage note was modified
in bankruptcy court. The modified first mortgage note with a principal
balance of $5,500,000, which has a stated rate of 9.5%, is being
amortized over a 30-year period and requires monthly payments of
$46,247. For financial reporting purposes, generally accepted
accounting principles required the Partnership to reduce the
outstanding principal balance of the mortgage to the sum of the future
cash flow payments required under the terms of the mortgage, including
a final payment on February 28, 1999 of approximately $5,200,000. All
cash payments made subsequent to the restructure are recorded as a
reduction of the principal balance with no interest expense recognized
by the Partnership. The note may be prepaid at any time, subject to
certain prepayment premiums.
On July 31, 1997, the General Partners obtained a $900,000 non-recourse
note (the "Note") for Walden Pond Apartments from the same lender that
holds the first mortgage note. The Note bears interest at a rate of
9.5% per annum and, commencing September 1, 1997, requires monthly,
interest-only payments until the maturity date. The Note matures on
February 28, 1999, simultaneous with the first mortgage note, at which
time all outstanding principal and any accrued interest are due. The
Note may be prepaid in its entirety without penalty, upon 90 days
written notice, and simultaneous payment of the first mortgage note.
Proceeds from the Note were deposited into an escrow account and will
be used to fund capital improvements at the property. The Partnership
paid closing costs of $33,082 to obtain the Note.
On February 28, 1999 the General Partners refinanced the Walden Pond
mortgage notes of $5,500,000 and $900,000 with monthly principal
payments of $6,500 and $1,100, respectively, and interest payments at
the contract rate of interest equal to the greater of (a) 0.5% per
annum in excess of the prime rate, or (b) 8% per annum. The notes
mature on February 28, 2001.
On November 9, 2000, the General Partners signed an agreement extending
the mortgage note payable, until November 1, 2002. Under the terms of
the extension agreement the interest rate on the debt is reduced from
prime + 0.5% to prime - 0.5%, 9% as of December 31, 2000. The
Partnership paid an extension fee of $29,555 for this privilege.
Because the interest rate on Walden Pond's debt fluctuates with market
rates, the book value of the mortgages approximates fair market value.
PAVILLION APARTMENTS
The property is subject to a non-recourse mortgage note payable, based
on a 30-year amortization, in equal monthly installments of principal
and interest of $57,587. At maturity, all unpaid principal ($6,580,326)
and any accrued and unpaid interest are due. The note may be prepaid at
any time, subject to certain prepayment premiums.
Continued
F-13
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
F. MORTGAGE NOTES PAYABLE, continued
PAVILLION APARTMENTS, continued
Based on the borrowing rates currently available to the Partnership for
bank loans with similar terms and average maturities, the fair value of
long-term debt is approximately $6,654,000 and $6,771,000 at December
31, 2000 and 1999, respectively.
The General Partners are currently negotiating an extension of this
mortgage note payable. It is anticipated that the mortgage will be
extended under terms that are substantially similar to the current
terms.
Due to restrictions on transfers and prepayment, the Partnership may be
unable to refinance certain mortgage notes payable at such calculated
fair value.
The aggregate scheduled principal amounts of long-term borrowings due
during the five years ending December 31, 2005 are $6,860,678,
$9,363,967, $0, $0, and $0, respectively.
The Partnership paid interest on its mortgage notes of $1,542,659,
$1,422,506 and $1,154,453 during the years ended December 31, 2000,
1999 and 1998, respectively.
G. OTHER LIABILITIES
Other liabilities consisted of the following at December 31, 2000 and
1999:
2000 1998
---------- --------
Accounts payable $ 30,998 $39,845
Accrued real estate taxes 608,519 523,496
Other liabilities 392,943 255,300
Tenant security deposits 157,668 149,677
---------- --------
$1,190,128 $968,318
========== ========
H. PARTNERS' DEFICIT
Under the terms of the Partnership Agreement, profits and losses from
operations are allocated 95% to the Investor Limited Partners, 4% to
the Original Limited Partner and 1% to the General Partners until such
time that the Investor Limited Partners have received a return of their
total invested capital plus a 9% per annum cumulative return thereon.
Thereafter, profits and losses will be allocated 65% to the Investor
Limited Partners, 28% to the Original Limited Partner and 7% to the
General Partners.
In accordance with the Partnership Agreement, distributions are
generally made on the same basis as the allocations of profits and
losses described above. Upon the occurrence of a capital transaction,
as defined in the Partnership Agreement, proceeds will be applied to
the payment of all debts and liabilities of the Partnership then due
and then fund any reserves for contingent liabilities. Remaining net
cash proceeds will then be distributed 99% to the Investor Limited
Partners until they have received a return of their total invested
capital and
Continued
F-14
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
H. PARTNERS' DEFICIT, continued
1% to the General Partners, thereafter net cash proceeds will be
distributed in accordance with the Partnership Agreement.
As of December 31, 2000, the following cumulative partner contributions
and allocations have been made since inception of KRLP-IV:
Investor Limited Original General Total Partners'
Partners Limited Partner Partners (Deficit)
------------------ ----------------- ---------------- ------------------
Capital contributions $30,000,000 $ 4,000 $ 1,000 $30,005,000
Syndication costs (4,050,000) - - (4,050,000)
Distributions:
Operations (9,455,227) (398,127) (99,530) (9,952,884)
Capital transaction (5,313,560) - (53,673) (5,367,233)
Income (loss):
Operations (26,706,702) (1,286,056) (282,756) (28,275,514)
Capital transaction 11,823,092 297,922 122,435 12,243,449
------------------ ----------------- ---------------- ------------------
Balance at
December 31, 2000 $(3,702,397) $(1,382,261) $(312,524) $(5,397,182)
================== ================= ================ ==================
I. RELATED PARTY TRANSACTIONS
The Partnership pays property management fees to an affiliate of the
General Partners' for management services. Pursuant to the management
agreements, management fees are payable monthly at a rate of 5% of the
gross receipts from the properties under management. The Partnership
also reimburses affiliates of the General Partners for certain expenses
incurred in connection with the operation of the Partnership and its
properties including administrative expenses.
Amounts accrued or paid to the General Partners' affiliates for the
years ended December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998
--------------- --------------- ---------------
Property management fees $291,677 $271,555 $287,049
Expense reimbursements 295,476 269,037 275,788
--------------- --------------- ---------------
Charged to operations $587,153 $540,592 $562,837
=============== =============== ===============
Continued
F-15
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
I. RELATED PARTY TRANSACTIONS, continued
Due from affiliates consisted of expense reimbursements of $28,007 and
is included in prepaid expenses and other assets at December 31, 2000.
Due to affiliates consisted of expense reimbursements of $33,723 at
December 31, 1999.
J. FEDERAL INCOME TAXES
For federal income tax purposes, the Partnership is depreciating
property using the Accelerated Cost Recovery System ("ACRS") and the
Modified Accelerated Cost Recovery System ("MACRS") depending on which
is applicable.
The reconciliation of the net income for each year reported in the
accompanying Consolidated Statement of Operations with the net loss
reported in the Partnership's federal income tax return for the years
ended December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998
---------- ---------- ----------
Net income per $ 333,985 $ 464,369 $3,145,310
Consolidated Statement of Operations
Difference in book and tax
depreciation for Fenland Field
and Indian Run 213,609 172,556 200,671
Difference in Partnership's share
of Pavillion Partners net income
for tax purposes 289,727 255,803 172,490
Difference in Partnership's share
of Westbridge Partners net
income for tax purposes 533,554 390,020 (128,156)
Difference between book and tax
gain on sale of property - - 1,742,577
---------- ---------- ----------
Net income for federal income tax
purposes $1,370,875 $1,282,748 $5,132,892
========== ========== ==========
The allocation of the net income for federal income tax purposes for
2000 is as follows:
Portfolio Passive
Income Income Total
--------- ---------- ----------
Investor Limited Partners $ 72,668 $1,229,663 $1,302,331
Original Limited Partner 3,060 51,775 54,835
General Partners 765 12,944 13,709
--------- ---------- ----------
$76,493 $1,294,382 $1,370,875
--------- ---------- ----------
F-16
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
J. FEDERAL INCOME TAXES, continued
During the years ended December 31, 2000, 1999 and 1998 the per Unit
net income to the Investor Limited Partners for federal income tax
purposes was $43.41, $40.62 and $168.82, respectively.
The basis of the Partnership's assets for financial reporting purposes
exceeded its tax basis by approximately $2,829,000 and $3,594,000 at
December 31, 2000 and 1999, respectively. The basis of the
Partnership's liabilities for financial reporting purposes is less than
its tax basis by approximately $4,492,000 and $5,868,000 at December
31, 2000 and 1999, respectively.
Continued
F-17
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued
December 31, 2000
-----
Costs Capitalized
Initial Cost to Parnership Subsequent to Acquisition
--------------------------------------------- -------------------------------------------
Buildings & Buildings & Depreciable
Description Encumbrance Land Improvements Land Improvements Life
------------------------- ----------- ----------- ------------ ----------- ------------ ----------
Fenland Field Apartments $ 3,720,715 $ 365,262 $ 4,852,767 $ 407 $ 3,508,073 3 to 25 yrs
Columbia, MD
Walden Ponds Apartments
Houston, TX 5,903,327 906,253 12,040,217 1,211 2,886,938 3 to 25 yrs
Pavillion Apartments
Garland, TX 6,600,604 680,621 9,042,535 1,199 2,216,856 3 to 25 yrs
----------- ----------- ----------- ----------- -----------
Total $16,224,646 $ 1,952,136 $25,935,519 $ 2,817 $ 8,611,867
=========== =========== =========== =========== ===========
Continued
F-18
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued
December 31, 2000
-----
Gross Amounts Carried at
End of Year
-------------------------------------------------
Year
Buildings and Accumulated Construction Year
Description Land Improvements Total Depreciation Completed Acquired
----------------------- ----------- ------------- ----------- ------------ ------------ ----------
Fenland Field
ApartmentsColumbia,
MD $ 365,669 $ 8,360,840 $ 8,726,509 $ 6,313,603 1970 1983
Walden Ponds
Apartments
Houston, TX 907,464 14,927,155 15,834,619 11,531,153 1982 1983
Pavillion
Apartments
Garland, TX 681,820 11,259,391 11,941,211 8,517,685 1983 1983
----------- ----------- ----------- -----------
Total $ 1,954,953 $34,547,386 $36,502,339 $26,362,441
=========== =========== =========== ===========
Continued
F-19
KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued
December 31, 2000
-----
Reconciliation of Real Estate and Accumulated Depreciation for each of the three
years in the period ended December 31, 2000:
2000 1999 1998
------------ ------------ ------------
REAL ESTATE
Balance at beginning of year $ 35,510,732 $ 34,849,450 $ 41,807,070
Acquisition and improvements 991,607 661,282 1,085,983
Sale of property -- -- (8,043,603)
------------ ------------ ------------
Balance at end of year $ 36,502,339 $ 35,510,732 $ 34,849,450
============ ============ ============
2000 1999 1998
------------ ------------ ------------
ACCUMULATED DEPRECIATION
Balance at beginning of year $ 24,736,628 $ 23,263,961 $ 26,859,567
Depreciation expense 1,625,813 1,472,667 1,697,258
Sale of property -- -- (5,292,864)
------------ ------------ ------------
Balance at end of year $ 26,362,441 $ 24,736,628 $ 23,263,961
============ ============ ============
The Partnership uses the cost basis for property valuation for both income tax
and financial statement purposes. The aggregate cost of the Partnership's real
estate for federal income tax purposes at December 31, 2000 is $36,507,288 and
the aggregate accumulated depreciation for federal income tax purposes is
$29,885,169.
F-20
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
June 30, December 31,
2001 2000
------------ ------------
Multi-family apartment communities, net of
accumulated depreciation of $27,159,374 and
$26,362,441, respectively $ 9,536,020 $ 10,139,898
Cash and cash equivalents 1,003,837 740,853
Real estate tax escrows 540,702 723,394
Prepaid expenses and other assets (Note 1) 136,110 277,631
Investment in securities (Note 2) 95,516 95,516
Deferred expense, net of accumulated amortization
of $359,216 and $341,854, respectively (Note 3) 22,938 40,300
------------ ------------
Total assets $ 11,335,123 $ 12,017,592
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable (Note 3) $ 16,048,491 $ 16,224,646
Due to affiliates (Note 5) 38,789 -
Other liabilities 922,000 1,190,128
------------ ------------
Total liabilities 17,009,280 17,414,774
------------ ------------
Partners' deficit (Note 4):
Investor Limited Partners
(30,000 Units outstanding) (3,965,523) (3,702,397)
Original Limited Partner (1,393,340) (1,382,261)
General Partners (315,294) (312,524)
------------ ------------
Total partners' deficit (5,674,157) (5,397,182)
------------ ------------
Total liabilities and partners' deficit $ 11,335,123 $ 12,017,592
============ ============
The accompanying notes are an integral
part of the consolidated financial statements.
F-21
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Month For the Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Revenue:
Rental $1,849,081 $1,806,649 $3,645,187 $3,590,724
Other Income 10,497 18,499 28,719 36,599
---------- ---------- ---------- ----------
Total revenue 1,859,578 1,825,148 3,673,906 3,627,323
---------- ---------- ---------- ----------
Expenses:
Operating (Note 5) 481,755 453,400 993,860 877,642
Maintenance 154,819 149,979 273,418 273,594
Real estate taxes 195,279 188,285 379,314 421,768
Management fees (Note 5) 78,265 72,136 153,669 145,375
General and administrative
(Note 5) 72,074 71,708 194,898 106,265
Depreciation and
amortization 407,570 400,312 814,295 798,532
Interest 355,503 387,932 750,192 769,108
---------- ---------- ---------- ----------
Total expenses 1,745,265 1,723,752 3,559,646 3,392,284
---------- ---------- ---------- ----------
Income before minority
interest 114,313 101,396 114,260 235,039
Minority interest (1,030) (892) (1,451) (1,697)
---------- ---------- ---------- ----------
Net income $ 113,283 $ 100,504 $ 112,809 $ 233,342
========== ========== ========== ==========
The accompanying notes are an integral
part of the consolidated financial statements.
F-22
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS, Continued
For the Three Month For the Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Allocation of net income (Note 4):
Investor Limited Partners
(30,000 Units outstanding):
Net income $ 107,619 $ 95,479 $ 107,169 $ 221,675
========== ========== ========== ==========
Investor Limited Partners
Per Unit:
Net Income $ 3.59 $ 3.18 $ 3.57 $ 7.39
========== ========== ========== ==========
Original Limited Partner
(100 Units outstanding):
Net income $ 4,531 $ 4,020 $ 4,512 $ 9,334
========== ========== ========== ==========
General Partners:
Net income $ 1,133 $ 1,005 $ 1,128 $ 2,333
========== ========== ========== ==========
The accompanying notes are an integral
part of the consolidated financial statements.
F-23
KRUPP REALTY LIMITED PARTNERSHIP - IV SUBSIDUARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended June 30,
--------------------------
2001 2000
----------- -----------
Cash flows from operating activities:
Net income $ 112,809 $ 233,342
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 814,295 798,532
Changes in assets and liabilities:
Decrease in prepaid expenses and other
assets 324,213 277,513
Decrease in other liabilities (270,492) (264,532)
Increase (decrease) in due to affiliates 38,789 (20,196)
----------- -----------
Net cash provided by operating activities 1,019,614 1,024,659
----------- -----------
Cash flows from investing activities:
Increase (decrease) in other liabilities related
to fixed asset additions 2,364 (6,415)
Fixed asset additions (193,055) (344,994)
----------- -----------
Net cash used in investing activities (190,691) (351,409)
----------- -----------
Cash flows from financing activities:
Principal payments on mortgage notes payable (176,155) (158,088)
Distributions (389,784) (389,784)
----------- -----------
Net cash used in financing activities (565,939) (547,872)
----------- -----------
Net increase in cash and cash equivalents 262,984 125,378
Cash and cash equivalents, beginning of period 740,853 856,738
----------- -----------
Cash and cash equivalents, end of period $ 1,003,837 $ 982,116
=========== ===========
The accompanying notes are an integral
part of the consolidated financial statements
F-24
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 pursuant to the
Rules and Regulations of the Securities and Exchange Commission. In the
opinion of the General Partners of Krupp Realty Limited Partnership - IV
and Subsidiaries ( the "Partnership"), the disclosures contained in this
report are adequate to make the information presented not misleading. See
notes to Consolidated Financial Statements included in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 2000 for
additional information relevant to significant accounting policies followed
by the Partnership.
The consolidated financial statements present consolidated assets,
liabilities and operations of Pavillion Partners, Ltd., Westbridge
Partners, Ltd., and Krupp Realty Limited Partnership-IV. Westcop
Corporation has a 1% interest in the operations of Westbridge Partners,
Ltd. and Pavillion Partners, Ltd. At June 30, 2001 and December 31, 2000,
minority interest of $7,138 and $8,589, respectively, is included in other
assets.
In the opinion of the General Partners of the Partnership, the accompanying
unaudited consolidated financial statements reflect all adjustments
(consisting of only normal recurring accruals necessary to present fairly
the Partnership's consolidated financial position as of June 30, 2001, its
results of operations for the three and six months ended June 30, 2001 and
2000 and its cash flows for the six months ended June 30, 2001 and 2000.
The results of operations for the three and six months ended June 30, 2001
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) INVESTMENT IN SECURITIES
On October 5, 2000, the Partnership, as a member of an alliance of major
multi-family real estate companies, executed a master lease agreement
("MLA") with a provider of high-speed internet, video and voice services to
multi-family communities. Pursuant to the MLA, the Partnership granted the
provider preferred lease, license and access rights to provide data
services, consisting of high-speed broadband internet access and video
services, to the residents at some of its multi-family communities for a
ten year period. In exchange for these rights, the Partnership received
366,691 shares of common stock which were valued at $.2285 per share or
$83,823. In addition, the Partnership will receive 7.5% of the gross
revenues that the provider obtains from providing its services as well as a
fixed amount for each resident that executes a subscriber agreement. In
conjunction with the execution of the MLA, the Partnership made an
investment of $8,406 in exchange for 36,785 additional shares of common
stock also valued at $.2285 per share. The Partnership incurred
approximately $3,287 in closing costs related to the acquisition by the
Partnership and the
F-25
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(2) INVESTMENT IN SECURITIES, continued
closing costs incurred were recorded as an investment in securities in the
financial statements as of June 30, 2001 and of December 31, 2000.
(3) MORTGAGE NOTES PAYABLE
On November 9, 2000, the General Partners signed an agreement extending the
mortgage note payable on Walden Pond Apartments, until November 1, 2002.
Under the terms of the extension agreement the interest rate on the debt
was reduced from prime + 0.5% to prime - 0.5%. The Partnership paid an
extension fee of $29,555 for this privilege.
As of December 31, 2000, the General Partners had signed agreements
extending the mortgage note payable on Fenland Field Apartments, under the
original terms, until June 1, 2002. The Partnership paid an extension fee
of $5,000 for this privilege.
On April 27, 2001, the General Partners signed an agreement extending the
mortgage note payable on Pavillion Apartments, under the original terms,
until May 1, 2002. The Partnership paid an extension fee of $32,969 for
this privilege.
(4) CHANGES IN PARTNERS' DEFICIT
A summary of changes in Partners' deficit for the six months ended June 30,
2001 is as follows:
Investor Original Total
Limiteded Limited General Partners'
Partners Partner Partners Deficit
----------- ----------- ----------- -----------
Balance at
December 31, 2000 $(3,702,397) $(1,382,261) $ (312,524) $(5,397,182)
Net income 107,169 4,512 1,128 112,809
Distributions (370,295) (15,591) (3,898) (389,784)
----------- ----------- ----------- -----------
Balance at
June 30, 2000 $(3,965,523) $(1,393,340) $ (315,294) $(5,674,157)
=========== =========== =========== ===========
(5) RELATED PARTY TRANSACTIONS
The Partnership pays property management fees to an affiliate of the
General Partners for management services. Pursuant to the management
agreements, management fees are payable monthly at a rate of 5% of the
gross receipts from the properties under management. The Partnership also
reimburses affiliates of the General Partners for certain expenses incurred
in connection with the operation of the Partnership and its properties,
including administrative expenses.
F-26
KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(5) RELATED PARTY TRANSACTIONS, continued
Amounts accrued or paid to the General Partners' affiliates were as
follows:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Property management fees $78,265 $72,136 $153,669 $145,375
Expense reimbursements 104,627 79,767 269,988 136,947
----------- ----------- ----------- -----------
Charge to operations $182,892 $151,903 $423,657 $282,322
=========== =========== =========== ===========
Due to (from) affiliates consisted of expense reimbursements of $38,789 and
$(28,007) at June 30, 2001 and December 31, 2000, respectively.
(6) SUBSEQUENT EVENT
On August 1, 2001, the Partnership sold Fenland Field Apartments to an
unrelated third party for $14,500,000. The carrying value of Fenland Field
Apartments was approximately $2,250,000. The sale included the payoff of
the mortgage owed on the property of approximately $3,640,000 and the
assumption of the remaining assets and liabilities.
F-27
APPENDIX A
FORM OF PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT, dated as of ________, 2001, by
and between Krupp Realty Limited Partnership-IV, a Delaware limited partnership
with an address of One Beacon Street, Suite 1500, Boston, Massachusetts, 02108
("SELLER"), and Walden Pond Limited Partnership, a Delaware limited partnership
with an address of One Beacon Street, Suite 1500, Boston, Massachusetts 02108
("PURCHASER").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller owns the property and the buildings and other
improvements situated thereon known as Walden Pond Apartments, located at 12850
Whittington, Houston, Texas 77077, having a tax assessor's parcel identification
number of "115-085-000-0004, 0005, 0006" and being legally described as that
certain 12 acre tract of land, or Reserve A1 and Reserve A2 in Ashford Crossing
Section One, Harris County, Texas (the "PROPERTY");
WHEREAS, Seller desires to sell, and Purchaser desires to
purchase, the Property, upon and subject to the terms of this Agreement;
WHEREAS, the general partner of Seller has duly authorized the
sale of the Property; and
WHEREAS, the general partners and limited partners of
Purchaser have duly authorized the purchase of the Property.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
SALE OF PROPERTY
----------------
1.1 Seller hereby agrees to sell and convey to Purchaser, and
Purchaser agrees to purchase from Seller:
(i) the Property, together with all of Seller's right,
title and interest in and to all easements, fixtures and appurtenances
appurtenant thereto;
(ii) all of Seller's right, title and interest in and to
all leases of space at the Property; and
(iii) all personal property owned or leased by Seller which
is located at, or used or useful in connection with, the Property.
1.2 Upon the sale of the Property to Purchaser, Purchaser shall
assume all obligations under the aforesaid leases and under all service
contracts and similar agreements relating to the Property which are identified
to Purchaser prior to the Closing (as defined in Section 4.1) and which the
Purchaser elects to assume, in each case to the extent such obligations arise on
or after the date of the Closing.
A-1
1.3 The Property and the other items described in Section 1.1
shall at the Closing be free and clear of all liens and other encumbrances,
other than (i) taxes not yet due and payable, (ii) matters an accurate survey
and physical inspection of the Property would show, (iii) all Leases (defined in
Section 4.2) and (iv) all matters of record, other than judgement liens,
mechanics' liens and other monetary liens (other than taxes not yet due and
payable), if any, the discharge of which, unless Purchaser agrees otherwise,
shall be the responsibility of Seller.
1.4 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, IT IS
UNDERSTOOD AND AGREED THAT SELLER IS NOT MAKING AND HAS NOT AT ANY TIME MADE ANY
WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED WITH
RESPECT TO THE PROPERTY, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OR
REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR
USE. PURCHASER ACKNOWLEDGES AND AGREES THAT UPON CLOSING SELLER SHALL SELL AND
CONVEY TO PURCHASER AND PURCHASER SHALL ACCEPT THE PROPERTY "AS IS, WHERE IS,
WITH ALL FAULTS" EXCEPT TO THE EXTENT EXPRESSLY PROVIDED OTHERWISE IN THIS
AGREEMENT.
ARTICLE 2
PURCHASE PRICE AND PAYMENT
--------------------------
2.1 Purchaser shall pay Seller, as the purchase price of the
Property, the sum of Twelve Million Eight Hundred Thousand Dollars ($12,800,000)
(the "PURCHASE PRICE").
2.2 The Purchase Price shall be paid to Seller by Purchaser on the
Closing Date (as defined in Section 4.1) by wire transfer of immediately
available funds to an account at a bank located in the United States of America
designated by Seller. Notwithstanding the foregoing, if Purchaser is directed in
writing by Seller, Purchaser will make payments to entities other than Seller.
ARTICLE 3
CONDITIONS TO CLOSING
---------------------
3.1 The respective obligations of each party hereto to effect the
transactions contemplated hereby are subject to the satisfaction at or prior to
the Closing of the following conditions:
(i) this Agreement shall have been approved by the
holders of a majority in interest of the investor limited partnership interests
of Seller (excluding any such interests held by the general partners of Seller
or their affiliates);
(ii) each of the parties shall have obtained the consent,
approval or waiver of each person or entity whose consent, approval or waiver
shall be
A-2
required in order for such party to consummate the transactions contemplated by
this Agreement; and
(iii) no statute, rule, regulation or injunction shall have
been enacted, promulgated or enforced by any governmental entity, and no action,
suit, claim or administrative or arbitral proceeding shall be pending before any
governmental entity which seeks to prohibit, restrain or enjoin the consummation
of the transactions contemplated by this Agreement or which seeks to subject any
party to substantial damages as a result of the consummation of the transactions
contemplated by this Agreement.
3.2 Until the Closing, Seller shall maintain its present insurance
on the Property. Subject to Article 6, the risk of loss in and to the Property
shall remain vested in Seller until the Closing. Buyer will obtain its own
insurance on the Property at Closing.
ARTICLE 4
THE CLOSING; CLOSING DELIVERIES
-------------------------------
4.1 The closing of the transaction provided for in this Agreement
(the "CLOSING") will be held at a time and place mutually agreed between the
parties on the first business day following the satisfaction of the conditions
set forth in Section 3.1 (the "SCHEDULED CLOSING DATE"); PROVIDED that Purchaser
shall have a one-time right to schedule the Closing on a business day occurring
at any time within 60 days following the Scheduled Closing Date. The date on
which the Closing occurs is referred to as the "CLOSING DATE."
4.2 At the Closing, Seller shall deliver the following to
Purchaser:
(i) a general warranty deed duly executed and
acknowledged by Seller, in proper statutory form for recording, so as to convey
to Purchaser fee simple title to the Property, subject to and in accordance with
the provisions of this Agreement (the "DEED");
(ii) [Intentionally Omitted]
(iii) an instrument (the "ASSIGNMENT") duly executed and
acknowledged by Seller, in which Seller assigns to Purchaser all of Seller's
right, title and interest as landlord in, to and under the leases or tenancies
of all tenants and other occupants of the Property (the "LEASES") and the
security deposits with interest to the extent provided in such Leases (which
security deposits and interest amounts shall be
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paid over to Purchaser at the Closing or credited against other amounts payable
by Seller to Purchaser at the Closing);
(iv) a list of the current rents now being collected on
each of the apartment units in the Property which includes: apartment number,
unit type, tenant name, commencement and termination dates, lease rent and
security deposits (including parking deposits and last month's rent, if any);
(v) an instrument duly executed and acknowledged by
Seller in which Seller assigns to Purchaser all of Seller's right, title and
interest in and to the utility deposits, if any, described in Section 4.5
hereof;
(vi) all other instruments and documents, including a
statement of adjustments, provided for herein; Seller shall also make any other
payments required by this Agreement to be paid by Seller;
(vii) an affidavit executed by or on behalf of Seller
providing Seller's taxpayer identification number and a statement that Seller is
not a foreign person within the meaning of Section 1445(f)(3) of the Internal
Revenue Code, as amended and the regulations promulgated thereunder;
(viii) the keys to the Property;
(ix) an instrument duly executed and acknowledged by
Seller in which Seller assigns to Purchaser all of Seller's right, title and
interest under any service or management contracts effecting the Property (the
"SERVICE CONTRACTS") in effect as at the Closing Date, which instrument shall
contain no warranties, express or implied;
(x) a letter to all tenants or other occupants of the
Property (the "TENANTS") advising them (x) of the change in ownership of the
Property and (y) directing them to pay Rent (as defined in Section 4.4(v)) to
Purchaser or as Purchaser may direct; and
(xi) original or copies of payroll records and other files
necessary for the administration of employees or contracts which Purchaser is
required to assume pursuant to this Agreement.
4.3 At the Closing, Purchaser will deliver to Seller the
following:
(i) the Purchase Price as provided in Section 2.1 hereof
(as adjusted pursuant to Section 4.4 hereof);
(ii) all other instruments and documents, including a
statement of adjustments, provided for herein; Purchaser shall also make any
other payments required by this Agreement to be paid by Purchaser;
(iii) [Intentionally Omitted]
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(iv) an instrument or counterparts of the Assignment
described in Section 4.2(iii) hereof, duly executed and acknowledged by
Purchaser, in which Purchaser assumes and agrees to observe and perform all of
the obligations of Seller under the Leases which arise on and after the Closing
Date and to indemnify Seller in respect thereof; and
(v) an instrument or counterparts of the instrument
described in Section 4.2(ix) hereof, duly executed and acknowledged by
Purchaser, in which Purchaser assumes and agrees to observe and perform all of
the obligations of Seller under the Service Contracts which arise on and after
the Closing Date and to indemnify Seller in respect thereof.
4.4 Subject to Section 4.6 hereof, the following items shall be
shared between the parties as of 11:59 p.m. of the day immediately preceding the
Closing Date (the "ADJUSTMENT DATE"):
(i) real estate taxes on the basis of the fiscal year for
which assessed;
(ii) water, sewer and vault charges on the basis of the
fiscal year for which assessed, on the basis of current bills and readings
obtained by Seller from the appropriate governmental entity or a reputable water
meter reading company within fifteen (15) days prior to the Adjustment Date.
Notwithstanding the foregoing, Seller shall not be responsible for paying and no
adjustment will be made between Purchaser and Seller for water, sewer and vault
charges which are the direct responsibility of any of the Tenants;
(iii) fees or charges for all transferable licenses and
permits, if any;
(iv) fuel on hand based on Seller's cost therefor
(including sales tax, if any), based on a written statement of the computation
and measurements thereof by Seller's regular suppliers based on a reading
performed no earlier than fifteen (15) days prior to the Closing Date;
(v) rents as and when collected. The word "RENTS" as used
in this Section 4.4(v) shall be deemed to include fixed monthly rents as well as
any additional rents or other income payable by Tenants. The term "COSTS OF
COLLECTION" shall mean and include reasonable attorneys' fees and other costs
incurred by Purchaser or Seller in collecting any Rents, but shall not include
the regular fees payable to any managing agent of the Property, the payroll cost
of either party's employees or any other internal costs or overhead of either
party.
(a) Any Rent collected by Purchaser subsequent
to the Closing (whether due and payable prior to or subsequent to the
Adjustment Date), net of costs of collection properly allocated
thereto, if any, shall be applied first to the month in which the
Closing occurs (and shared between the parties as of the Adjustment
Date), next in payment of Rents then due on account of such Tenant's
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current monthly rental, and next in payment of delinquent Rents owed by
such Tenant in the reverse order in which they were due, remitting
promptly to Seller any balance properly allocable to Seller's period of
ownership. Purchaser shall bill and use commercially reasonable efforts
to collect such Rent arrearages in the ordinary course of business, but
shall not be obligated to engage a collection agency or take legal
action to collect any Rent arrearages.
(b) After the Closing, Seller shall continue to
have the right, in its own name and at its own expense, to demand
payment of and to collect Rent arrearages owed to Seller by any Tenant,
which right shall include, without limitation, the right to continue or
commence legal actions or proceedings against any Tenant. Purchaser
agrees to cooperate with Seller in connection with all efforts by
Seller to collect such Rents and to take all steps, whether before or
after the Closing Date, as may be reasonably necessary to carry out the
intention of the foregoing, including, without limitation, the delivery
to Seller, upon demand, of any relevant books and records, the
execution of any and all consents or other documents, and the
undertaking of any action reasonably necessary for the collection of
such Rents by Seller.
(vi) the cost of all materials, supplies and other items
purchased and paid for by Seller for the Property in the ordinary course of
business which are not in use and are not in damaged or unusable condition as at
the date of the Closing, and the cost of all such supplies ordered for the
Property in the ordinary course of business and paid for in whole or in part by
Seller, but not received by the date of the Closing. Prior to conducting any
inventory of such items Seller shall give Purchaser reasonable advance notice
and an opportunity to be present during the performance of the inventory. At the
Closing, Purchaser shall reimburse Seller for the cost of all such supplies
previously paid for by Seller and shall assume the costs of all such supplies
ordered in the ordinary course of business and not paid for by Seller;
(vii) wages, payroll taxes, welfare benefits, vacation pay
and other fringe benefits (in accordance with the applicable union contract, if
any) for any employee of Seller which employee Purchaser elects to retain is to
be assumed by Purchaser pursuant to this Agreement;
(viii) charges payable under the Service Contracts with
respect to the Property which are assumed by Purchaser; and
(ix) all other items customarily apportioned in connection
with the sale of properties similar to the Property in the State of Texas.
4.5 Seller shall cause all electricity, gas and other utility
meters to be read on the day preceding the Adjustment Date, or as close thereto
as may be reasonably possible, and shall pay all bills rendered as a result of
such readings. The cost of such utilities for the period, if any, between the
date of the meter reading and the Adjustment Date shall be adjusted on the basis
of the most recently issued bill therefor. If Seller does not obtain such a
meter reading for any such utility, the adjustment therefor shall be on
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the basis of the most recently issued bill therefor. At the Closing, Purchaser
shall reimburse Seller in an amount equal to all deposits, if any, made by
Seller with any utility company which will remain on deposit for the benefit of
Purchaser subsequent to the Closing, notwithstanding any provision in this
Section 4.5 to the contrary. Notwithstanding any provision in this Section 4.5
to the contrary, Seller will not be required to obtain meter readings for any
utilities for which Tenants are directly liable for the payment thereof.
4.6 The amount of any unpaid taxes, water charges and sewer rents
which Seller is obligated to pay and discharge, with the interest and penalties
thereon to a date not less than two business days after the Closing Date, may at
the option of Seller be allowed to Purchaser out of the Purchase Price, provided
official bills therefor with interest and penalties thereon figured to said date
are furnished by Seller at the Closing.
ARTICLE 5
COVENANTS
---------
5.1 Purchaser shall pay at the Closing all recording and filing
fees and charges, and all survey charges and Seller shall pay all title
insurance charges. No part of the Purchase Price hereunder will be paid by
Purchaser for the personal property transferred hereunder. However, if any part
of the Purchase Price is deemed by any governmental or administrative body to
have been paid for such personal property, Purchaser will be solely responsible
for the sales tax (if any) payable in connection therewith and will indemnify
Seller therefor and against any claim, liability or damage resulting from any
obligations arising from Purchaser's failure to pay the amount of any such sales
tax. Each party shall pay the fees and disbursements of its own counsel. The
provisions of this Article 5 shall survive the Closing.
5.2 From the date hereof until the Closing, Seller shall continue
to operate the Property in the ordinary course consistent with past practice.
ARTICLE 6
DAMAGE OR DESTRUCTION; CONDEMNATION
-----------------------------------
6.1 If by reason of fire or other casualty a Material (hereinafter
defined) portion of the buildings and improvements located on the Property shall
be destroyed or significantly damaged (the "Loss") prior to the Closing then
Purchaser may by notice given no later than 10 business days after Seller has
given Purchaser notice of the Loss, terminate this Agreement, in which event
this Agreement shall become null and void and neither party hereto shall have
any rights or obligations to the other hereunder or by reason hereof, other than
those provisions of this Agreement which specifically survive the termination of
this Agreement.
6.2 If Purchaser has not elected to terminate this Agreement, if
permitted to do so under Section 6.1, or if, at any time from the date hereof
until the Closing a portion of the buildings and improvements located on the
Property which is not
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Material shall be damaged or destroyed, neither party shall have the right to
terminate this Agreement as a result of such damage or destruction and the
purchase price shall not be reduced on account thereof; PROVIDED, HOWEVER, that
Seller will assign, transfer and convey to Purchaser all of Seller's right,
title and interest in and to any insurance proceeds that may be made or paid to
Seller for the portion of the buildings and improvements located on the Property
so damaged or destroyed. If all or any portion of such insurance proceeds has
already been received by Seller, then the amount so received (less the costs of
collection, if any, and any expenses incurred by Seller for the temporary
protection and/or restoration of the Property) shall be paid or allowed to
Purchaser at the Closing, without interest.
6.3 As used herein, a loss shall be deemed Material if 10% or more
of the buildings and improvements located on the Property are destroyed or
significantly damaged.
ARTICLE 7
MISCELLANEOUS
-------------
7.1 This Agreement may be terminated at any time prior to the
Closing:
(i) by mutual written consent of Seller and Purchaser;
(ii) by either Seller or Purchaser if the Closing shall
not have occurred by December 6, 2001; PROVIDED, HOWEVER, that the right to
terminate this Agreement pursuant to this clause 7.1(ii) shall not be available
to any party whose failure to perform any of its obligations under this
Agreement has been the cause of, or resulted in, the failure of the Closing to
occur on or before such date.
7.2 In the event of a termination of this Agreement by either
party, as provided in this Section 7.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of either party
or their respective partners, except with respect to Article 5 and this Section
7.1. Nothing herein shall relieve any party of liability with respect to any
breach by any party hereto of this Agreement.
7.3 This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Texas without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Texas or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of Texas.
7.4 This Agreement and the instruments referred to herein embody
the entire agreement and understanding between the parties relating to the
subject matter hereof and may not be amended, waived or discharged except by an
instrument in writing executed by the party against whom enforcement of such
amendment, waiver or discharge is sought.
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7.5 This Agreement may be executed in counterparts, each of which
when so executed shall be deemed to be an original, and such counterparts shall
together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties have duly executed this
Agreement the day and year first above written.
SELLER:
KRUPP REALTY LIMITED PARTNERSHIP-IV
By: The Krupp Corporation,
its General Partner
By: _______________________________________
PURCHASER:
WALDEN POND LIMITED PARTNERSHIP
By: Walden Pond Texas, L.L.C.,
its General Partner
By: _______________________________________
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APPENDIX B
AMENDMENT NO. 1 TO THE AMENDED AGREEMENT OF
LIMITED PARTNERSHIP OF
KRUPP REALTY LIMITED PARTNERSHIP-IV
THIS AMENDMENT NO. 1 TO THE AGREEMENT OF LIMITED PARTNERSHIP, dated as
of November 30, 1982 (the "PARTNERSHIP AGREEMENT"), OF KRUPP REALTY LIMITED
PARTNERSHIP-IV, a Massachusetts limited partnership (the "PARTNERSHIP"), by and
among The Krupp Corporation, a Massachusetts corporation, and The Krupp Company
Limited Partnership-II, a Massachusetts limited partnership, as General Partners
(together, the "GENERAL PARTNERS"), The Krupp Company Limited Partnership-II, as
the Original Limited Partner, and those persons admitted to the partnership as
Investor Limited Partners and providing their Consent hereto is made as of
August 15, 2001, in accordance with the procedures of Section 14(a) of the
Partnership Agreement. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Partnership Agreement.
1. The Partnership Agreement is hereby amended by adding the
following prior to the last sentence of Section 6.2(b) thereof and to Section
6.6 at the conclusion thereof:
"Notwithstanding the foregoing or any other provision
contained in the Partnership Agreement, at any time after
August 15, 2001, the Partnership may, among other things,
enter into, consummate and perform its obligations under a
purchase and sale agreement with an Affiliate of a General
Partner substantially in the form of the agreement previously
delivered to the Investor Limited Partners pursuant to a proxy
statement; PROVIDED that such purchase and sale agreement is
executed prior to December 6, 2001.
2. In all other respects the Partnership Agreement shall remain
in full force and effect in accordance with its terms.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their respective duly authorized persons as of the
date first above written.
THE KRUPP CORPORATION,
GENERAL PARTNER
By:____________________________________________
Name: Douglas Krupp
Title: CO-CHAIRMAN OF THE BOARD OF DIRECTORS
THE KRUPP COMPANY LIMITED
PARTNERSHIP-II, GENERAL PARTNER AND ORIGINAL
LIMITED PARTNER
By: The Krupp Corporation,
GENERAL PARTNER
By:____________________________________________
Name: Douglas Krupp
Title: CO-CHAIRMAN OF THE BOARD OF DIRECTORS
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FORM OF PROXY CARD
KRUPP REALTY LIMITED PARTNERSHIP - IV
ONE BEACON STREET
SUITE 1500
BOSTON, MASSACHUSETTS 02108
SOLICITED BY THE GENERAL PARTNERS FOR THE SPECIAL MEETING OF UNITHOLDERS TO BE
HELD ON _____, 2001
The undersigned hereby appoints Frank Apeseche, David Quade and Scott
Spelfogel, or any of them, each with full power of substitution, as proxies or
proxy of the undersigned and hereby authorizes them to represent and vote as
designated below all investor limited partnership units of Krupp Realty Limited
Partnership - IV (the "Partnership") held of record by the undersigned at the
close of business on _____, 2001 at the special meeting of unitholders (the
"Special Meeting") to be held on _____, 2001 at the Partnership's principal
executive offices located at One Beacon Street, Suite 1500, Boston,
Massachusetts, 02108, or any adjournment or postponement thereof, and, in their
discretion, upon all matters incident to the conduct of the Special Meeting and
such other matters as may properly be brought before the Special Meeting.
This signed proxy card revokes all proxies previously given by the
undersigned to vote at the Special Meeting or any adjournment or postponement
thereof. The undersigned hereby acknowledges receipt of the Notice of Special
Meeting and the proxy statement relating to the Special Meeting.
THE GENERAL PARTNERS RECOMMEND A VOTE FOR THE FOLLOWING PROPOSAL:
---
To approve the sale of Walden Pond Apartments, one of the Partnership's
real estate investments, to an entity affiliated with the General Partners, and
an amendment to the Partnership's partnership agreement permitting the
Partnership to enter into a purchase and sale agreement and complete the sale.
( ) FOR ( ) AGAINST ( ) ABSTAIN
WHEN PROPERLY EXECUTED, THIS PROXY CARD WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN, THIS PROXY CARD WILL BE VOTED FOR THE FOREGOING PROPOSAL.
---
PLEASE SIGN EXACTLY AS NAME APPEARS BELOW.
Dated __________________________________ 2001
_____________________________________________
Signature
_____________________________________________
Signature, if held jointly
Please sign exactly as your name appears on
this proxy card. If units are registered in
more than one name, the signatures of all
such persons are required. A corporation
should sign in its full corporate name by a
duly authorized officer, stating such
FORM OF PROXY CARD
[continued]
2
officer's title. Trustees, guardians,
executors and administrators should sign in
their official capacity giving their full
title as such. A partnership should sign in
the partnership name by an authorized person,
stating such person's title and relationship
to the partnership.
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE. ALTERNATIVELY, PLEASE FORWARD BOTH SIDES OF THE COMPLETED
PROXY CARD BY FACSIMILE TO KRUPP FUNDS GROUP AT 617-423-8919.
( ) I HAVE READ THE ABOVE AND WOULD LIKE TO ATTEND THE SPECIAL MEETING
IN PERSON. PLEASE SEND ME A TICKET FOR ADMISSION TO THE MEETING.