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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-15815
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Krupp Insured Plus Limited Partnership
Massachusetts 04-2915281
(State or other jurisdiction of incorporation or organization) (IRS employer identification no.)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(617) 523-0066
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
- ------
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. When used in this Form 10-Q, the words "believes," "anticipates,"
"expects," "plans," "intends," "estimates," "continue," "may" or "will" (or the
negative of such words) and similar expressions are intended to identify
forward-looking statements. Such statements are subject to a number of risks and
uncertainties, including but not limited to the following: federal, state or
local regulations; adverse changes in general economic or local conditions;
prepayments of mortgages; failure of borrowers to pay participation interests
due to poor operating results of properties underlying the mortgages; uninsured
losses and potential conflicts of interest between the Partnership and its
Affiliates, including the General Partners. The Company's filings with the
Securities and Exchange Commission, including its Annual Report on Form 10-K for
the year ended December 31, 2001, contain additional information concerning such
risk factors. Actual results in the future could differ materially from those
described in any forward-looking statements as a result of the risk factors set
forth above, and the risk factors described in the Annual Report.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
June 30, December 31,
2002 2001
----------------- -----------------
Participating Insured Mortgages ("PIMs")(Note 2) $ 13,165,307 $ 18,779,477
Mortgage-Backed Securities and
insured mortgage ("MBS") (Note 3) 9,168,243 9,410,920
----------------- -----------------
Total mortgage investments 22,333,550 28,190,397
Cash and cash equivalents 1,117,553 1,422,582
Interest receivable and other assets 146,081 190,282
Prepaid acquisition fees and expenses, net of
accumulated amortization of $814,674 and
$785,095 respectively 29,578 59,157
Prepaid participation servicing fees, net of
accumulated amortization of $311,740 and
$292,428, respectively 19,312 38,624
----------------- -----------------
Total assets $ 23,646,074 $ 29,901,042
================= =================
LIABILITIES AND PARTNERS' EQUITY
Liabilities $ 44,010 $ 17,877
----------------- -----------------
Partners' equity (deficit)(Note 4):
Limited Partners
(7,500,099 Limited Partner interests outstanding) 23,307,795 29,633,496
General Partners (243,494) (249,219)
Accumulated comprehensive income 537,763 498,888
----------------- -----------------
Total Partners' equity 23,602,064 29,883,165
----------------- -----------------
Total liabilities and Partners' equity $ 23,646,074 $ 29,901,042
================= =================
The accompanying notes are an integral part
of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------ -------------------------------
2002 2001 2002 2001
----------- ------------ ------------ --------------
Revenues:
Interest income - PIMs
Basic interest $ 242,893 $ 361,202 $ 525,084 $ 725,155
Participation interest - - 504,639 -
Interest income - MBS 182,935 391,888 367,738 788,568
Other interest income 6,344 17,839 22,384 40,618
----------- ----------- ------------ -------------
Total revenues 432,172 770,929 1,419,845 1,554,341
----------- ----------- ------------ -------------
Expenses:
Asset management fee to an affiliate 40,846 69,435 85,049 138,415
Expense reimbursements to affiliates 15,003 14,163 25,725 25,664
Amortization of prepaid fees and expenses 24,446 23,066 48,891 46,132
General and administrative 34,995 22,796 49,460 36,103
---------- ----------- ------------ --------------
Total expenses 115,290 129,460 209,125 246,314
---------- ----------- ------------ -------------
Net income 316,882 641,469 1,210,720 1,308,027
Other comprehensive income:
Net change in unrealized gain on MBS 16,235 67,005 38,875 76,942
----------- ----------- ------------ -------------
Total comprehensive income $ 333,117 $ 708,474 $ 1,249,595 $ 1,384,969
=========== =========== ============ =============
Allocation of net income (Note 4):
Limited Partners $ 307,375 $ 622,225 $ 1,174,398 $ 1,268,786
=========== =========== ============ =============
Average net income per Limited
Partner interest (7,500,099 Limited Partner
interests outstanding) $ .04 $ .08 $ .16 $ .17
=========== =========== ============ =============
General Partners $ 9,507 $ 19,244 $ 36,322 $ 39,241
=========== =========== ============ =============
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Six Months
Ended June 30,
--------------------------------
2002 2001
---------------- -------------
Operating activities:
Net income $ 1,210,720 $ 1,308,027
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of prepaid fees and expenses 48,891 46,132
Shared Appreciation Interest (378,480) -
Changes in assets and liabilities:
Decrease in interest receivable and other assets 44,201 3,508
Increase in liabilities 26,133 4,531
------------ -------------
Net cash provided by operating activities 951,465 1,362,198
------------ -------------
Investing activities:
Principal collections on MBS 281,552 294,274
Principal collections on PIMs including Shared Appreciation
Interest of $378,480 in 2002 5,992,650 46,991
------------ -------------
Net cash provided by investing activities 6,274,202 341,265
------------ -------------
Financing activities:
Quarterly distributions (1,530,617) (1,543,527)
Special distribution (6,000,079) -
------------ -------------
Net cash used for financing activities (7,530,696) (1,543,527)
------------ -------------
Net increase (decrease) in cash and cash equivalents (305,029) 159,936
Cash and cash equivalents, beginning of period 1,422,582 1,460,786
------------ -------------
Cash and cash equivalents, end of period $ 1,117,553 $ 1,620,722
============ =============
Non cash activities:
Increase in Fair Value of MBS $ 38,875 $ 76,942
============ =============
The accompanying notes are an integral
part of the financial statements.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted in this report on Form 10-Q pursuant to the Rules and Regulations
of the Securities and Exchange Commission. However, in the opinion of the
general partners, The Krupp Corporation and The Krupp Company Limited
Partnership-IV (collectively the "General Partners"), of Krupp Insured
Plus Limited Partnership (the "Partnership") the disclosures contained in
this report are adequate to make the information presented not misleading.
See Notes to Financial Statements included in the Partnership's Form 10-K
for the year ended December 31, 2001 for additional information relevant
to significant accounting policies followed by the Partnership.
In the opinion of the General Partners of the Partnership, the
accompanying unaudited financial statements reflect all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the Partnership's financial position as of June 30, 2002, its results of
operations for the three and six months ended June 30, 2002 and 2001 and
its cash flows for the six months ended June 30, 2002 and 2001.
The results of operations for the three and six months ended June 30, 2002
are not necessarily indicative of the results which may be expected for
the full year. See Management's Discussion and Analysis of Financial
Condition and Results of Operations included in this report.
2. PIMs
At June 30, 2002, the Partnership's remaining PIM had a fair market value
of $13,715,617 and gross unrealized gains of $550,310. The PIM matures in
2033.
The Partnership received a prepayment of the Royal Palm Place PIM. On
January 2, 2002, the Partnership received $378,480 of Shared Appreciation
Interest and $126,159 of Minimum Additional Interest. On February 27,
2002, the Partnership received $5,563,531 representing the principal
proceeds on the first mortgage. On March 19, 2002, the Partnership paid a
special distribution of $0.80 per Limited Partner interest from the
principal proceeds and Shared Appreciation Interest received.
3. MBS
At June 30, 2002, the Partnership's MBS portfolio had an amortized cost of
$8,630,480 and gross unrealized gains of $537,763. The portfolio has
maturities ranging from 2006 to 2032.
4. Changes in Partners' Equity
A summary of changes in Partners' Equity for the six months ended
June 30, 2002 is as follows:
Accumulated Total
Limited General Comprehensive Partners'
Partners Partners Income Equity
---------------- ----------- ------------- --------------
Balance at December 31, 2001 $ 29,633,496 $ (249,219) $ 498,888 $ 29,883,165
Net income 1,174,398 36,322 - 1,210,720
Quarterly distributions (1,500,020) (30,597) - (1,530,617)
Special Distribution (6,000,079) - - (6,000,079)
Change in unrealized gain on MBS - - 38,875 38,875
---------------- ----------- ------------- --------------
Balance at June 30, 2002 $ 23,307,795 $ (243,494) $ 537,763 $ 23,602,064
================ =========== ============= ==============
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Form 10-Q constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. These forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the Partnership's actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by these forward-looking statements. These factors include, among other
things, federal, state or local regulations; adverse changes in general economic
or local conditions; pre-payments of mortgages; failure of borrowers to pay
participation interests due to poor operating results at properties underlying
the mortgages; uninsured losses and potential conflicts of interest between the
Partnership and its Affiliates, including the General Partners.
Liquidity and Capital Resources
At June 30, 2002, the Partnership had liquidity consisting of cash and cash
equivalents of approximately $1.1 million as well as the cash flow provided by
its investments in its remaining PIM and MBS. The Partnership anticipates that
these sources will be adequate to provide the Partnership with sufficient
liquidity to meet its obligations as well as to provide distributions to its
investors.
The most significant demand on the Partnership's liquidity is the quarterly
distributions paid to investors, which are approximately $750,000 per quarter.
Funds for the quarterly distributions come from the monthly principal and basic
interest payments received on the remaining PIM and MBS, the principal
prepayments of the PIM and MBS, interest earned on the Partnership's cash and
cash equivalents and cash reserves. The portion of distributions attributable to
the principal collections and cash reserves reduces the capital resources of the
Partnership. As the capital resources decrease, the total cash flows to the
Partnership also will decrease and over time will result in periodic adjustments
to the distributions paid to investors. The General Partners periodically review
the distribution rate to determine whether an adjustment is necessary based on
projected future cash flows. In general, the General Partners try to set a
distribution rate that provides for level quarterly distributions. To the extent
that quarterly distributions do not fully utilize the cash available for
distributions and cash balances increase, the General Partners may adjust the
distribution rate or distribute such funds through a special distribution. Based
on current projections, the General Partners have determined that the
Partnership can maintain its current distribution rate of $0.10 per Limited
Partner interest per quarter through the November distribution.
The Partnership received a prepayment of the Royal Palm Place PIM. On January 2,
2002, the Partnership received $378,480 of Shared Appreciation Interest and
$126,159 of Minimum Additional Interest. On February 27, 2002, the Partnership
received $5,563,531 representing the principal proceeds on the first mortgage.
On March 19, 2002, the Partnership paid a special distribution of $0.80 per
Limited Partner interest from the principal proceeds and Shared Appreciation
Interest received.
In addition to providing insured or guaranteed monthly principal and basic
interest payments, the Partnership's investment in the remaining PIM also may
provide additional income through a participation interest in the underlying
property. The Partnership may receive a share in any operating cash flow that
exceeds debt service obligations and capital needs or a share in any
appreciation in value when the property is sold or refinanced. However, this
payment is neither guaranteed nor insured and is dependent upon whether property
operations or its terminal value meet certain criteria.
The Partnership's only remaining PIM investment is backed by the first mortgage
loan on Vista Montana. Presently, the General Partners do not expect Vista
Montana to pay the Partnership any participation interest or to be sold or
refinanced during 2002. However, if favorable market conditions provide the
borrower an opportunity to sell the property, there are no contractual
obligations remaining that would prevent a prepayment of the underlying first
mortgage. Vista Montana operates under a long-term restructure program. The
Partnership agreed in 1993 to change the original participation terms and to
permanently reduce the rate on the first mortgage loan to 7.375% per annum when
construction was significantly delayed. The borrower also raised additional
equity at the time of the modification by selling investment tax credits. These
funds have been held in escrow and are used to fund operating deficits. Although
occupancy in the Phoenix sub-market is generally in the low 90% range, the
property is currently 80% occupied because of a fire. Repairs to the property
are underway and will be covered by the borrower's property insurance.
The Partnership has the option to call its remaining PIM by accelerating
the maturity date of the loan. The Partnership will determine the merits of
exercising the call option as economic conditions warrant. Such factors as
the condition of the asset, local market conditions, interest rates and
available financing will have an impact on this decision.
Critical Accounting Policy
- --------------------------
The Partnership's critical accounting policy relates primarily to revenue
recognition related to the participation feature of the Partnership's PIM
investments. The Partnership's policy is as follows:
Basic interest on PIMs is recognized at the stated rate of the Federal Housing
Administration insured mortgage (less the servicer's fee) or the stated coupon
rate of the Fannie Mae MBS. The Partnership recognizes interest related to the
participation features when the amount becomes fixed and the transaction that
gives rise to such amount is consummated.
Results of Operations
Net income decreased during the three months ended June 30, 2002 when compared
to the same period in 2001 due primarily to decreases in basic interest income
on PIMs, interest income on MBS, other interest income and an increase in
general and administrative expense. This was partially offset by a decrease in
asset management fees. Basic interest income on PIMs decreased due to the payoff
of the Royal Palm Place PIM during the first quarter of 2002. Interest income on
MBS decreased due to the payoff of the Boulders Apartments MBS in July of 2001
and principal collections received on the single family MBS. Other interest
income decreased due to lower average cash balances available for short-term
investing and lower interest rates earned on those balances in the three-month
period when compared to the same period in 2001. Asset management fees decreased
due to the prepayments mentioned above. General and administrative expense
increased due to higher processing costs in 2002 due to the overpayment of 2000
processing costs that were refunded in 2001.
Net income decreased during the six months ended June 30, 2002 when compared to
the same period in 2001 due primarily to decreases in basic interest income on
PIMs, interest income on MBS, other interest income and a increase in general
and administrative expense. This was partially offset by an increase in
participation interest and an decrease in asset management fees. Participation
interest increased and basic interest income on PIMs decreased due to the payoff
of the Royal Palm Place PIM during the first quarter of 2002. Interest income on
MBS decreased due to the payoff of the Boulders Apartments MBS in July of 2001
and principal collections received on the single family MBS. Other interest
income decreased due to lower average cash balances available for short-term
investing and lower interest rates earned on those balances in the six-month
period when compared to the same period in 2001. Asset management fees decreased
due to the prepayments mentioned above. General and administrative expense
increased due to higher processing costs in 2002 due to the overpayment of 2000
processing costs that were refunded in 2001.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------
Assessment of Credit Risk
The Partnership's investments in mortgages are guaranteed or insured by the
Government National Mortgage Association ("GNMA"), Fannie Mae, the Federal Home
Loan Mortgage Corporation ("FHLMC") or the United States Department of Housing
and Urban Development ("HUD") and therefore the certainty of their cash flows
and the risk of material loss of the amounts invested depends on the
creditworthiness of these entities.
Fannie Mae is a federally chartered private corporation that guarantees
obligations originated under its programs. FHLMC is a federally chartered
corporation that guarantees obligations originated under its programs and is
wholly-owned by the twelve Federal Home Loan Banks. These obligations are not
guaranteed by the U.S. Government or the Federal Home Loan Bank Board. GNMA
guarantees the full and timely payment of principal and basic interest on the
securities it issues, which represents interest in pooled mortgages insured by
HUD. Obligations insured by HUD, an agency of the U.S. Government, are backed by
the full faith and credit of the U.S. Government.
At June 30, 2002 the Partnership included in cash and cash equivalents
approximately $900,000 of commercial paper, which is issued by entities with a
credit rating equal to one of the top two rating categories of a nationally
recognized statistical rating organization.
Interest Rate Risk
The Partnership's primary market risk exposure is to interest rate risk, which
can be defined as the exposure of the Partnership's net income, comprehensive
income or financial condition to adverse movements in interest rates. At June
30, 2002, the Partnership's PIM and MBS comprise the majority of the
Partnership's assets. Decreases in interest rates may accelerate the prepayment
of the Partnership's investments. The Partnership does not utilize any
derivatives or other instruments to manage this risk as the Partnership plans to
hold all of its investments to expected maturity.
The Partnership monitors prepayments and considers prepayment trends, as well as
distribution requirements of the Partnership, when setting regular distribution
policy. For MBS, the fund forecasts prepayments based on trends in similar
securities as reported by statistical reporting entities such as Bloomberg. For
its remaining PIM, the Partnership continues to monitor the borrower for any
indication of a prepayment.
KRUPP INSURED PLUS LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(99.1) Principal Executive Officer Certification pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(99.2) Chief Accounting Officer Certification pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Krupp Insured Plus Limited Partnership
--------------------------------------
(Registrant)
BY: / s / Robert A. Barrows
-----------------------------------------------------------
Robert A. Barrows
Vice-President (Chief Accounting Officer) of
The Krupp Corporation, a General Partner of the Registrant.
DATE: August 13, 2002
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Krupp Insured Plus Limited
Partnership (the "Partnership") on Form 10-Q for the period ending June 30, 2002
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Douglas Krupp, Co-Chariman (Principal Executive Officer),
President and Director of The Krupp Corporation, a General Partner of the
Partnership, certify, pursuant to U.S.C. ss. 1350, as adopted pursuant to ss.
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Partnership as of June 30, 2002 (the last
date of the period covered by the Report).
/ s / Douglas Krupp
- -----------------------------------
Douglas Krupp,
Principal Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Krupp Insured Plus Limited
Partnership (the "Partnership") on Form 10-Q for the period ending June 30, 2002
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Robert A. Barrows, Chief Accounting Officer of The Krupp
Corporation, a General Partner of the Partnership, certify, pursuant to U.S.C.
ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Partnership as of June 30, 2002 (the last
date of the period covered by the Report).
/ s / Robert A. Barrows
- -----------------------------
Robert A. Barrows,
Chief Accounting Officer